)
London-based Essar Energy today reported a 7% decline in its operating profit to $543.7 million in the six months to September, from $582.6 million a year ago as a weak rupee offset higher margins at its flagship Vadinar refinery.
The LSE-listed flagship Essar Group company, which is also into power generation, oil and gas exploration apart from refining, said during the reporting period it had to take $483 million hit due to the rupee fall.
The newly-appointed Essar Energy chief executive, Sushil Maroo, told reporters in a conference call that pre-tax loss according to IFRS nearly doubled to $498.8 million from $282 million in the six months to September 2012.
Maroo attributed higher losses to the impact of crude oil volatility on inventory of USD 83 million, forex loss of $483 million on sharp rupee fall from 54 to 63. Much of this is in practice unrealised and will be subsequently recovered through product sales.
The global refining market was very tough during the period, with global industry margins falling sharply in both Asia and Europe. However, Maroo said Essar's Vadinar and Stanlow refineries outperformed the market, but were nevertheless impacted.
However, Maroo sounded optimistic about the future, saying "future is bright and he expects the overall numbers to see major improvement over the next 12-24 months."
Vadinar Refinery's operating profit rose to $339.4 million in H1 from $311.1 million on higher margins which jumped 9% to $6.97 a barrel, against $6.41 a barrel a year ago, Maroo said.
The gap between Vadinar's margins and the industry-wide Singapore benchmark margin widened significantly to $7.91/barrel, including $8.23/barrel in the second quarter, which is above target range of USD7-8/barrel, with Singapore margins at negative USD1.30/barrel in Q2, he added.
The income from the Stanlow refinery fell to $65.2 million from $197.2 million, while gross refinery margins fell to $5.03 per barrel, against UDS 8.03/barrel. This was nevertheless well above industry-wide North West Europe benchmark margins of $1.85/barrel, Maroo said.
He said production at Stanlow will be massively cut in H2 following a fire at the furnace. However, he said one unit has resumed and the rest will be resumed in stages.
On the power business, chief financial officer Deepak Maheshwari said operating profit jumped 59% to $147 million from $93 million as new generation projects at Vadinar (510 mw) came on stream and generation at Salaya (1,200 mw) increased, taking the total current generation to 3,910 mw. He added that the company is confident of meeting its 5000-mw generation target by the end of FY15.
Maroo said, the total debt of the company fell 2.6% to $6.56 billion, helped by the depreciation of the rupee against the dollar.
The company has a target of dollarising $2.9 billion of this debt and has already done rupee debt worth $870 million of Essar Oil India, cutting interest bill at the rate of $6 million for every $100 million refinanced.
Replying to a query on when the target will be met, Maroo said hopefully by this fiscal end, which means the company will be dollarising $2 billion.
Maroo said the focus in going forward will be selling non-core assets, especially in the E&P front both from the domestic as well as from the international assets.
To a question whether that includes exiting CBM blocks he answered in the negative. The company has 5-6 Nelp bocks and has nearly 10 blocks overseas.
