State-run Bharat Petroleum Corp Ltd posted sound Q4 earnings and declared a bonus issue to reward investors. Robust gasoline demand was helping oil companies like BPCL grow their business in double digits. It is likely to propel the market in FY17 as well.

Speaking to Bloomberg TV India , BPCL Finance Director P Balasubramanian says gross refining margin (GRM) has been at an all-time high of $6.59 per barrel as against $3.62 the previous year. The company will soon commission the Kochi refinery, which will further improve the GRM by $1-2 per barrel. Overall, the margin should be somewhere around $5-6 in the current financial year, he said.

BPCL announced a bonus issue. Why did you choose to go to bonus route? Are you also looking at a possible share buy back?

We thought that apart from the dividend, we should reward long-term investors with a bonus issue. We have had a good capital, good reserves, as well as profitability. So we thought of rewarding the stakeholders. There is no proposal for any share buyback.

Is the bonus issue aimed more at expanding the equity base so that you can actually raise more debts to fund your capital expenditures? Or is it solely for the purpose of rewarding shareholders?

There are two things. One is we have our capex plan. But our debt-equity today is very low. So we can still fund the capex from the existing capital. But the net worth is what is considered for any capital or debt equity purposes. So whether it is a bonus share or equity share, it doesn’t matter. But overall net worth is what is being looked at. But yes we have a capex plan through a combination of both debt and equity. And we have been having a good cash generation in the last couple of years and then the internal generations are fairly good. To balance the differential between internal generations and the capex plan, we go to the market whenever required and we fund it through debt financing too.

BPCL’s gross refining margin (GRM) has improved in FY16 and the last quarter has been stellar. How do you see things panning out in FY17? How will your investment in refineries actually going to support margins?

The GRMs in last financial year have been exceptional. The GRM has been at an all-time-high for us at $6.59 per barrel as against $3.62 the previous year. It is a bit exceptional. We are seeing cracks between the products and crude oil. Of course it has come down a bit from Q4 of this year. But having said that, it is a question of demand and supply in the global scenario. We are still hopeful that we will be still having a $4-6 margin in the current year on an average basis. Our Kochi refinery project commissioning has started. We will be fully commissioning the entire project by November-December or the first quarter of the next year. So the benefits of Kochi refinery margin will come in the fourth quarter of this fiscal year. As part of the capex programme, we have a bottom upgradation programme in Kochi. And as such the margins of Kochi should be at least at $1-2 more than what we have because we are eliminating the bottom products and then we will be having more space for the top-level products. That will give us better margins in the current year starting from Q4 onwards. Overall, the margin should be somewhere around $5-6 in the current financial year.

Gasoline demand has been very strong. So can can cater to that demand in a better way?

Gasoline has been one of the front-runners for quite a long time. In the last three years, we have ad a double-digit growth and this year also the gasoline is growing very well even at a higher base. So we feel that overall gasoline demand will propel the market and give that extra growth.

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