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Low crude oil prices and decontrol of auto fuels may have helped IndianOil Corporation (IOC) to cut down its borrowings but the largest marketer of petroleum products still has an average borrowing of around Rs 50,000 crore.
The benchmark Indian crude oil basket has been hovering around $50 a barrel against last year's average of $84.
Diesel price was fully linked to market rates in October 2014 after a phased increase in retail rates. The United Progressive Alliance government had earlier deregulated petrol price in June 2010.
Speaking to Business Standard, B Ashok, chairman and managing director, IndianOil, said the company's interest costs have come down by about Rs 1,500-1,600 crore this year. He said at any point of time the company raises debt primarily to meet its expenses on crude purchases.
IndianOil's crude purchase volumes rose marginally from 51.4 million tonne (mt) in 2013-14 to 52.4 mt last financial year but, thanks to the historic crude price slump, the purchase value came down by around 20 per cent to Rs 194,600 crore from Rs 241,300 crore in 2013-14.
IndianOil's borrowings rose seven per cent from Rs 80,894 crore at the end of 2012-13 to Rs 86,263 crore at the end of 2013-14.
Due to the historic crude price slump that set in June 2014, the company's borrowings came down to Rs 55,248 crore in March 2015, a 35 per cent decline.
The easing on the borrowing front has also brought down total interest cost for the company by 32 per cent within a year - Rs 3,435 crore in 2014-15 as compared to Rs 5,084 crore in the previous financial year (2013-14).
In line with the reduced borrowings, IOC's debt-to- equity ratio came down to 0.81 last financial year from 1.31 in 2013-14, indicating a gradual improvement in balance sheet health. However, a mammoth inventory loss of Rs 15,600 crore ate into its net profit last financial year that slipped by 25 per cent to Rs 5,273 crore from Rs 7,019 crore.
Ashok said in the current year the inventory losses were not expected to be high since the fall in crude prices has not been as sharp as last year. The company does not hedge its crude oil purchases because of the volatility in its prices but resorts to hedging product crack which is the differential between crude oil and product price.
