Ticking All The Correct Boxes
Government-owned oil marketing behemoth HPCL has been registering record performances both in terms of physical and financial numbers for the past four years. At the refinery level, the company has undertaken all measures to get the best value for each barrel processed. The company’s CFO J. Ramaswamy points out that reliability improvements along with de-bottlenecking of units without much capex have led to distillate yield improvements and energy efficiencies. “Capacity utilisation of our refineries has been over 110 per cent consistently. Marketing segment has rolled number of forward looking initiatives to improve the value propositions, quality assurances and securing of customer loyalty. These measures ensured high growth rate for the company despite severe competition,” says Ramaswamy, who joined the company way back in 1984.
The main focus was on areas relating to revenue maximisation and cost leadership as part of the company’s strategic pursuit. A robust budgeting and monitoring model coupled with effective treasury management has helped to control the unit cost of operations, Ramaswamy says. On the treasury front, the thrust has been on optimising the borrowing cost through a mix of various instruments. Besides, in the post-GST arena, old and existing contracts were revisited to ensure tax benefits.
“The entire organisation was sensitised on focusing towards the overall corporate margins rather than individual department margins through the integrated margin management approach. Thus, a host of these measures have contributed to the success story of HPCL in physical and financial terms through a collective organisational effort,” he says.
Efforts have also been made to leverage HPCL’s vast retail network for additional contributions in all possible ways.
Needless to say that Ramaswamy and his team have played a critical role in the decision making process. “Further, we have reactivated the commodity hedging desk with proper mandates to cover for the oil price risk volatilities,” he adds.
Ask him about the challenges that a drop in global crude oil prices bring along and he is quick to say, “There have been lot of challenges not only during the dip in oil prices but otherwise as well. While the dip in oil prices eases the working capital pressure, it brings within it, the challenge of inventory management and managing the inventory losses. As OMCs carry huge oil stocks to provide the required service levels to end customers, the huge dips can throw lot of challenges from profitability and treasury perspectives.”
According to Ramaswamy, the best way to handle this is to have a robust oil price risk hedging mechanism balancing the hedging cost and stability of margins.
Recently, HPCL was in news. ONGC picked up 51 per cent of its stake in an all cash deal. Ramaswamy points out that the acquisition process was smooth without any major hurdle. “Our role was to provide inputs for valuation to the financial advisors, which we duly did,” he adds.
The mantra for all CFOs, according to Ramaswamy should be to keep the focus and ensure tenacity of cash flows with optimum cost. “I see the CFO’s role to understand this and handle this in such a way that operational needs through working capital and growth needs through capex are funded appropriately. There are plenty of financial products available in the market and a CFO should continuously scan the market and make use of products best suited for the organisation,” he says.
