)
The burden of underrecoveries and the lag between these and the cash compensation provided by the government have forced oil marketing companies to resort to borrowings, thereby hitting their debt-equity ratios.
A Business Standard analysis shows the debt-equity ratios of oil marketing companies Indian Oil Corporation Ltd (IOCL) and Hindustan Petroleum Corporation Ltd (HPCL) have seen a continuous decline through the past five years. However, for Bharat Petroleum Corporation Ltd (BPCL), the ratio has improved.
BPCL’s debt-equity ratio stood at 1.42 in March this year, against 1.54 a year earlier. Borrowings from banks fell from Rs 20,749.94 crore in March 2012 to Rs 18,774.07 crore in March this year.
IOCL, the largest of the three oil marketing companies, said in its annual report for 2012-13: “The corporation’s rising debt and deteriorating debt-equity ratios are a concern.” As of March 2013, IOCL’s debt-equity ratio stood at 1.32 against 1.3 as on March 31 2012.
IOCL’s borrowings stood at Rs 80,894 crore as on March 31 2013, compared with Rs 75,447 crore as on March 31, 2012.
“The delay in compensation by the government of the underrecoveries incurred forces oil marketing companies (OMCs) to resort to borrowings for maintaining their cash flow. Growing borrowing levels, along with the high interest rates in the country, escalated the debt servicing burden of OMCs and made a major dent on their financial health,” IOCL said.
IOCL’s capital expenditure increased from Rs 1,12,871 crore as on March 31 last year to Rs 1,23,113 crore as on March 31 this year. For HPCL, the debt-equity ratio stood at 0.75 as of March 2013, against 0.66 in March 2012. During the same period, borrowings rose from Rs 29,831 crore to Rs 33,789 crore.
R K Singh, chairman and managing director, BPCL, said better management of funds and timely subsidy reimbursement from the government had led to a better debt-equity ratio for the company. “In fact, our current debt-equity ratio is less than one,” he said.
