It is with great pride and immense pleasure that I present to you the 65th Annual Report on the performance of your company for the year 2016-17.
The year 2016-17 was a year of continued transformation towards higher performance of your company by creating value for customers. The company scaled new peaks in terms of profitability, market sales and return to shareholders, and registered the best ever all-round performance since formation. For the first time ever, the profit after tax for the year crossed Rs.6,000 crore mark on standalone basis and Rs.8,000 crore on consolidated basis. Your company exceeded previous year’s all time high profit after tax by 67% to reach Rs.6209 crore resulting in a significant increase in the earning per share to Rs.61.12.
The stellar performance of 2016-17 hinged on the strong financial and physical performances of the refinery and marketing divisions and our two-pronged approach of achieving business goals with responsibility. HPCL’s refineries at Mumbai and Visakh achieved the highest ever combined refining throughput of 17.8 MMT with a capacity utilization of 113% and recorded a healthy combined GRM of USD 6.20 per barrel. Against the backdrop of rising competition in domestic market, your company registered highest ever market sales of 35.2 MMT with a growth of 3% over historical. The excellent performance reflected in HPCL being conferred with Petrofed Oil & Gas Marketing company of the year award among the many recognitions and awards received.
The outstanding performance of the company was also recognized by the capital markets with the market capitalization more than doubling during the financial year to reach a level of Rs 53,380 crore by 31st March 2017. Your company has declared/proposed total dividend of Rs.30.00 per share(ex-bonus) for 2016-17 and issued bonus shares twice for the year totalling to 7 equity shares (Rs 10/- each) for every 2 equity shares (Rs.10/- each) held. The results of 2016-17 have made us more ambitious about our future and confident of continuing the performance momentum.
For the Global Oil and Gas Industry, the year gone by was challenging, with interplay between economic, political and social forces; a thrust towards low carbon future and advent of digital technologies to drive down costs. It was yet another year of low crude oil prices. However, Oil prices recovered from the 12-year low witnessed in the previous year to US$ 54-55 per barrel during Jan-Feb’17 and witnessed decline thereafter. The production cut agreement between OPEC and non-OPEC countries at the end of 2016, partially assisted in reversing the prevailing global supply glut. For another year in succession, lower oil prices posed challenge for oil exporting countries; however, these favoured oil importers including India by reducing the cost of imports. Lower crude oil prices also had a positive impact on inflation and economic growth of India.
The Indian economy maintained its momentum and registered impressive GDP growth rate of 7.1% aided by a better growth in agriculture sector on the back of a normal monsoon. Foreign exchange reserves increased by about USD 22 billion during 2016-17 to reach about USD 370 billion by March 2017. Rupee-US dollar exchange rate, which was about 66 in the beginning of financial year, ended at about 65 at the end of the year as portfolio inflows went up. Various reforms and land mark policy initiatives undertaken by Government of India laid a strong foundation for future growth and saw a major thrust on digital payment transactions. Another major development on economic front, last year, was demonetization of high value currency. It did create initial difficulties for informal and cash intensive sectors of the economy. However, intended long-term benefits in terms of greater formalisation of economy, better measurement, greater tax compliance, revenue generation and increased flow of savings to financial instruments are likely to outweigh short term costs of demonetization.
Accelerated economic activities coupled with low oil prices helped drive strong demand growth for petroleum products in India. India is now the world’s third largest oil consumer and has become a key driver of global oil demand growth. During 2016-17, Petroleum product consumption in India increased with an annual growth of 5.2% to reach 194 MMT. All major products recorded a positive consumption growth during the year while Kerosene, Naphtha, Bitumen and Lubricants recorded a de-growth. Petrol consumption recorded a strong growth of 8.8% on the back of increased passenger vehicle & two wheeler vehicle sales. Continuing the last three year’s trend, Diesel consumption recorded a positive growth of 1.8% during 2016-17 owing to increased usage of public transport & improvement in medium and heavy commercial vehicle sales. Kerosene registered a de-growth of 21% during the year which is the highest ever de-growth in last 46 years, mainly because of enhanced LPG penetration in rural areas through Pradhan Mantri Ujjwala Yojana and voluntary surrender of kerosene quota by some states. LPG consumption increased with a growth of 9.8% due to Government’s impetus to provide clean cooking fuels by enhancing LPG penetration through various schemes. Aviation fuel consumption recorded a growth of 12.1%, highest growth during last decade on the back of growth in passenger traffic due to rising income levels and government’s thrust to promote low cost air travel. Fuel oil witnessed a growth of 8% due to increased use by Power, Steel and Small & Medium Enterprise Sectors. Slowdown of construction activities led to a marginal de-growth of 0.8% in Bitumen consumption during the year.
To cater to the increased demand, HPCL’s refineries at Mumbai and Visakh recorded combined distillate yield of 75.8% with highest ever production of Petrol, Diesel & Lube Oil Base Stock and achieved lowest ever specific energy consumption. Both the refineries successfully completed planned turnaround cycles within the scheduled timelines, enhancing reliability and ensuring product availability. Both HPCL refineries prepared well ahead of the schedule to ensure supply of BS IV MS and HSD from 1st April 2017.
Continued strategic expansion of pipeline network, judicious expansion and revamp of primary distribution network of Terminals, Depots & LPG Plants coupled with strategic commissioning of new dealerships / distributorships helped us leverage the opportunity of increased demand and increase our domestic market sales by about 2.5% in 2016-17 to reach 34.7 MMT.
Your company recorded a growth of 1.3% in total motor fuel basis despite the re-entry of private players in fuel retailing after deregulation of retail fuel prices. Your company maintained No. 2 position in LPG Sales with a double digit growth of 11.1% and continued the market leadership position in Non-Domestic Bulk LPG segment. The strategy to focus on maximising volumes in three focus products of Fuel Oil, Consumer Diesel and Bitumen helped HPCL outperform industry growth and cross 1 million tonne sales in these three products in the same year for the second consecutive year. In the highly profitable segment of lubricants, your company rolled out a systematic process to appoint channel partners to strengthen and increase the presence in bazaar and MSME segment. Your company continues to be India’s largest lube marketer for the fourth consecutive year with 9.5% growth in total lubricants sales. In Aviation fuel sales, international airlines and carriers like Lufthansa, Aerologic, Brussels Airlines, DHL Group and Aeroflot were added to the existing customer portfolio which helped your company gain 0.20 percent market share with growth of 13 % over historical.
To enhance our distribution and logistics capabilities through expansion of pipeline network, your company commissioned and commenced operations of 355 km long Mangalore Hassan Mysore Yediyur LPG pipeline taking the total cross country pipeline network to 3370 km.
To enhance the ethanol production and improve blending of Ethanol in petrol, your company has laid the Foundation stone on 25th December 2016 for India’s first 2G Bio Refinery to be set up at Bathinda, Punjab.
To align our business to the changing patterns of demand and leverage potential opportunities as the country transitions to a low carbon economy, your company is strengthening its presence in Natural Gas & Renewables and has commissioned a 50.5 MW wind power project in Rajasthan during the year.
In line with your company’s vision to provide high quality products and innovative services, Green Research and Development Centre (HPGRDC) has been set up at Bengaluru. A total of eight products / technologies were demonstrated by HPGRDC till date which will help HPCL achieve significant cost advantages and efficiency improvements. HPCL is also the first company to launch Petrol with 99 Octane rating in India. Further, to nurture an eco-system conducive for innovation ‘HP Startup’ initiative has also been launched.
Your company constantly strives to be a model of excellence in all endeavours be it in business excellence or in societal and environmental stewardship. HPCL undertook implementation of Pradhan Mantri Suraksha Bima Yojna, Pradhan Mantri Jan Dhan Yojna, Pradhan Mantri Jeevan Jyoti Bima Yojna at locations. Under PMUY over 53 lakh new LPG connections to BPL families were released.
To enhance transparency and bring in better visibility of information to stakeholders, various e-initiatives like cashless payment facilities at retail outlets through various mobile wallets and online payment platforms, migration of subscription vouchers of 4.3 crore LPG consumers to Digi-Locker platform, on-line and cashless payment facilities for LPG refill, Crude procurement through e-platform, 100% e-procurement compliance etc. were implemented by your company.
In efforts to create a competent workforce and develop technical skills, HPCL in consortium with Oil PSUs has partnered with Government of India to set up in the state of Andhra Pradesh, the “Indian Institute of Petroleum & Energy (IIPE)”, an institute of national importance for imparting technical education and promote research activities and “Skill Development Institute (SDI)” for training unemployed youth and enhancing their technical skills.
During the year, your company continued the Integrated Margin Management (IMM) approach of maximising Net Corporate Realisation by improving the cross functional decision making across the organization. It has brought tight control over inventory and logistic cost. To stabilize the margins, activities of Oil Price Risk Management (OPRM) were resumed during 2016-17 through IMM group.
HSE Management systems have been put in place across all locations of HPCL to strengthen HSE governance & compliance through surveillance audits, benchmarking & Safety Index. Safety is a Non Negotiable Pillar of the core strategy of HPCL and your company strives to ensure zero Incidents in business operations.
Your company secured ‘Excellent’ rating with a Memorandum of Understanding (MOU) score of 99.36 in terms of the MOU signed with the Government of India for the year 2015-16.
All the subsidiaries and joint venture companies of your company continued the successful business partnerships and achieved growth in their respective business spheres which resulted into highest ever consolidated net profit of Rs 8236 crore for HPCL with 76.2% growth over historical.
The superior performance was made possible by our committed and competent workforce of more than 10,000 employees and business associates who enable us to operate effectively in the highly competitive environment. Our human resource management initiatives are aimed at developing a vibrant workforce and enhancing the value to various stakeholders.
As per IEA estimates, Global oil demand in 2017 is expected to grow by 1.3% as compared to 1.7% in 2016. China and India are expected to lead in consuming the additional demand garnering a share of about 45% in global incremental oil consumption. Crude oil prices have decreased by 17% by the end of Q1 of 2017-18 from the levels witnessed in Feb’17. The main reasons for this downfall are the consistently decreasing breakeven prices of Shale Gas, resumption of supplies from African countries, economic concerns in China and build-up of product inventories. Brent prices are expected to remain range bound in US$ 45-55 per barrel range during 2017. Most forecasts project India’s GDP to grow around 7.0 percent to 7.5 percent during 2017-18, with consumption continuing to drive the Indian economy.
As India is poised to become one of the fastest growing economies in the world, there will be more opportunities. To leverage and capitalize on these opportunities freewheeling discussions were held with employees across levels during the year to gain critical insights from the ground level on the challenges facing our company, identify focus areas and undertake actions and finalise investment plan to stay ahead of the performance curve in the changing scenario. This helped us develop a 5-year road map named T20 (Target 2020), ushering the beginning of a new journey, which will set HPCL on a higher and accelerated trajectory of growth and profitability.
To participate in the growth, your company have undertaken investments for enhancing refining capacity and build marketing infrastructure. Environmental clearance for Visakh Refinery Modernization Project (VRMP) for enhancing the refinery capacity to 15 MMTPA and Mumbai Refinery expansion Project (MREP) for enhancing the refinery capacity to 9.5 MMTPA have been received. Project activities for both the projects are on track. On the Marketing front, expansion of Mundra Delhi (MDPL), Visakh Vijayawada Secunderabad (VVSPL), Ramanmandi Bahadurgarh (RBPL) Pipelines, Extension line from Palanpur to Vadodara with associated terminal facilities, new POL Depots, LPG Plants and Lube Blending plants have been planned. Your company is taking steps to create and grow our presence in the new business of Petrochemicals. HPCL has signed a Revised Memorandum of Understanding (RMOU) with the government of Rajasthan for setting up of an Integrated Petroleum cum Petrochemical Refinery in Rajasthan. The planned Capex outlay during the period 2017-21 is about Rs.61,000 crore.
Recently Government of India has announced its decision to consider strategic sale of its 51.11% of total paid up Equity holding in your company to Oil and Natural Gas Corporation Ltd (ONGC) as a part of integration of Oil Public Sector Undertakings announced in the Union Budget for 2017-18. It is envisaged that even after proposed acquisition of GOI’s equity holding in HPCL by ONGC, HPCL will continue to be Central Government Public Sector Enterprise (CPSE) retaining its cultural uniqueness and Brand identity.
It has been your Company’s resolve to build an Institution for India that will truly be an engine of growth for the national economy. HPCL’s unshakeable commitment to serve national priorities enjoins on us the responsibility to ensure that this growth is inclusive, creates meaningful sustainable livelihoods and a secure ecological environment.
Your Corporation has indeed traversed a remarkable journey of transformation to create an incredible company with boundless potential. I have tremendous faith in HPCL’s world-class team of dedicated professionals, and I know that they will leave no stone unturned in their continuing quest to take the Company to new heights.
Our customers, employees, business associates and shareholders have always been a source of strength and I thank them for their continued trust and support. The Ministry of Petroleum & Natural Gas, Departments of Central / State Governments and local authorities have guided and supported us in all our efforts ensuring smooth conduct of the business, I look forward to their continued support and guidance in all our endeavours.
We look forward to your continued support for our shared success by creating value in the eyes of customers and deliver Happiness.
Mukesh Kumar Surana