In an interview to CNBC-TV18, B Ashok, Chairman, IOC , said the gas price hike will benefit industry and economy as a whole and expects a higher competition going ahead.
Ashok expects subsidy burden to be around Rs 85,000 crore with fall in crude. "When you compare it with last year, the overall subsidy was about or under recoveries were about Rs 1,40,000 crore out of which the diesel component was nearly Rs 63000 crore. So there has been a significant impact in terms of diesel under recoveries and for the rest of the year since the decontrol has happened there is not likely to be any under recovery on diesel," he said.
Below is the transcript of B Ashok's interview to CNBC-TV18's Latha Venkatesh and Sonia Shenoy
Latha: What is going to be the advantage for IOC for the remaining part of the year? Are you getting a sense that it is coming as kind of a mixed blessing, a diesel price cut but nevertheless market prices?
A: I think it is a very forward looking decision which bodes well for the consumers in the country of course the fiscal deficits are likely to go down. IOC and oil industry has been anticipating this announcement since the time APM dismantling has been talked about. I think a considered decision has now been taken by the government.
Actually when you look at our organisation we are well prepared for this day. Yes we do expect an increase in competition and the private sector to recommence their business. I think competition of course has the potential to deliver maximum customer benefit and provide them a greater choice.
Latha: So you would have pressure on your margins actually wouldn't you?
A: I wouldn't say pressure on our margins. Certainly competitiveness will increase but we do have our strategies in place and we have tremendous strength as an organisation. We have a network and infrastructure which is quite unmatched and of course our people are well prepared and set to face the challenges and we have great competence and capability in our structure.
Sonia: So how much do you think the subsidy burden could come down to because of the announcements that came over the weekend?
A: As far as the current year is concerned we have been quite happy because the oil prices have been softening. So overall we expect the subsidies would be somewhere around Rs 85000 crore mark out of which the diesel components during the first six months was about Rs 11000 crore. When you compare it with what happened last year the overall subsidy was about or under recoveries were about Rs 1,40,000 crore out of which the diesel component was nearly Rs 63000 crore. So there has been a significant impact in terms of diesel under recoveries and for the rest of the year since the decontrol has happened there is not likely to be any under recovery on diesel.
Sonia: What about FY16, any projections their?
A: FY16 projections we have not made yet but it all depends on how the crude oil behaves and probably the indications are that it should be in the positive direction. I think overall it bodes well.
Latha: How do the margins for Q3 itself look for you? What is the likely subsidy burden and what is the impact on margins because crude has fallen but so has diesel price?
A: That is right, in terms of margins we cannot make an accurate estimate.
Latha: Will it be better than Q2?
A: Even the Q2 results are not out yet.
Latha: Directionally if you keep the crude prices where they are at about USD 85/barrel and diesel prices where they are now with Rs 3 knocked off, will Q3 be better than Q2 is my point?
A: We do hope so, let us wait and watch.
IOC stock price
On October 20, 2014, at 14:14 hrs Indian Oil Corporation was quoting at Rs 379.90, up Rs 14.35, or 3.93 percent. The 52-week high of the share was Rs 410.90 and the 52-week low was Rs 194.50.
The company's trailing 12-month (TTM) EPS was at Rs 52.04 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 7.3. The latest book value of the company is Rs 271.80 per share. At current value, the price-to-book value of the company is 1.40.
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