Hindustan Petroleum Corporation Limited (HINDPETRO) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Hindustan Petroleum Corporation Limited Q2 FY '27 Earnings Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Varatharajan sir from Antique Stock Broking Limited. Thank you, and over to you, sir.

Thank you, Anu. Good morning to ladies and gentlemen, and it's my pleasure to welcome all of you to the 2Q FY '27 earnings call of HPCL. We have with us, Mr. Vikas Kaushal, Chairman, Managing Director; Mr. Srividya Venkataraman, Director Finance; Mr. S. Bharathan, Director refineries; and Mr. K Vinod, ED, Corporate Finance. I'd like to hand over the call to Mr. Vikas Kaushal for his opening remarks. The flood is yours, sir.

Thank you, Mr. Varatharajan, and good morning, everyone. Pleasure talking to you again on our quarterly analyst call. Since the introductions are already done, I'll get on with the agenda, we'll do the same as we have done in the last call. So maybe speak for about 7 minutes, 10 minutes, giving our perspective on the situation, numbers you already have and some of you have already commented or written about the numbers. And then we will keep the floor open for questions. Just to start off with the business overview. We all know the challenging times continue. If you see today, good price, you will know where it is, it keeps on fluctuating widely, and currently is quite high. In this whole prices, which has now gone on for over 8 months, our teams have been resilient and agile and basically kept the wheels in motion. As a management team, our focus has been on me, first of all, to meet our customer expectations to the lakhs and crores who depend on us for mobility and cooking fuels, that has been the primary objective. And I'm sure we have lift up to the expectations in the trying times. Obviously, running the assets in an optimized manner is the precursor to that. trying the best to manage the financial situation with the quarter 1, we had a challenging financial situation. But in all of this, we are not losing thought on what we need to do to prepare for the future and how do we want to transform ourselves in the future. We'll touch upon all of these elements in the opening comments. You all know we had a tough quarter 1 with significant losses, both on stand-alone and consolidated basis. Q2 clearly was the bounce back. which all of us are very proud of. Numbers, you've already seen, but I'll talk of a few things. If you look at one of the pivotal numbers, the EBITDA numbers, against the loss of INR 1,486 quarter we posted INR 9,822 crores of profit in EBITDA in quarter 2. This is a swing of INR 24,681 crores, as a management team, that's a swing too much, but at least the positive side is we are able to swing it. Obviously, the questions you'll have is what drove it. I think 3 or 4 factors one, a very strong typical performance, both on refining and sales. And I'm not talking just about headline numbers, which get published. But as we peer between the layers, there was very strong performance on both these aspects. Our refinery GRMs in quarter 2 were -- I think we've declared the number at 32 point to 15 pre SAED, I'm sure there will be questions on this we will answer them later. That is significantly higher than what it was in quarter 1 and our refiners performed quite strongly. The marketing margins were decent as compared to significant under-recovery in quarter 1. Small help from inventory is or not very significant. A lot of it is operational performance. and very tight cost and working capital and even CapEx control helped it. The PBT for the quarter was INR 6,768 crores versus 1,446 crores negative last quarter, again, a difference of swing of INR 2,214 crores resulted in a PAT of INR 3,438 -- probably the fact is a bit subdued on account of tax treatments but nevertheless, if you look at PBT, the number at INR 6,700-odd crores was a good one. As a result of this improved performance, we were able to recover some balance sheet strength, those of you who have been on calls last year would recall that as a management team, we have been very focused on deleveraging. We managed to get it down from 1.4 odd at the beginning of last financial year to 2.8%. Then it jumped to 1.52 we're happy that it's back at 1.38, though it is still at a higher level than where we are comfortable in terms of our stand-alone leverage. Our consolidated numbers also ahead of [indiscernible], primarily on account of strong performance of both our refinery joint ventures. HMEL turned in a solid quarter with -- if I recall, it's one of the best H1s are probably the best ever, at least in a long time, and MRPL also contributed strongly in that process. So just to recap, our consolidated PAT last quarter was INR 12,265 crores negative. And this time, consolidated INR 3,625 crores, a swing of about INR 15,890 crores. I'm sure you'll have some questions on it. We can answer them and there are a lot of technical details in director finance and can get into the details. I'll cover some of the other aspects, which we'll be keen to understand. I'm sure you want to know what's happening at Aja. You've been asking questions and we all them that at the right time, we will come out with the right information. We are now at a stage where we can share a lot more details. As you know, the refinery was a scheduled commercial operation date was declared on 22nd June. We gave a guidance that it will run at around 55%, 60% utilization. It has been running at that utilization. Of course, being a new asset, there are periods in between when you have to take a shutdown or do some minor tweaking but even as we speak, it runs at around 60% utilization. Almost all secondary units in the refinery are working in hot stint. Only 2 secondary units are left for hot zinc one is [indiscernible], which probably will get [indiscernible] by this weekend. And then there is another one, which probably is in the final stages and get up before Diwali. Post that, we will be completing our sulfur recovery unit and taking up to full capacity. We had given a guidance of quarter 3, that towards end of quarter 3, we will run on that, give or take a week or 2 are holding on to that guidance than towards the end of quarter 3, sometime in December, we will touch the refinery -- we are hoping to touch the refinery throughput at a run rate of 8 to 9 MMTPA. The GRMs for the quarter were $1 per quarter 2. That's again a lot of open start. In the current month, there are 60 -- these are net of SAAB because HRL, RTP macros. It's currently 16% plus. And we are still running on those sulfur moment, we move on to high sulfur crudes, which the refinery is capable of. the current level of assumptions, this will be 20 plus in Q4. Petchem is on track as per later guidelines with first of the units starting to come on stream towards quarter 4 of this year. There has been another major development on HR RL. Post the commissioning, we have significantly altered the debt structure of the company. We have refinanced the entire debt of HPCL, INR 45,000 crores, INR 50,000 crores. All agreements were signed end of September. And from October 3, it has taken the entire debt has been restructured, and we are probably about 105 basis points lower than what the rate of. It will give an annual benefit of about INR 470 crores to INR 500 crores. And actually, the benefits start flowing in from October 3 itself when the revised rates were applicable. The second part has -- third part has been equity infusions. We have been further atalizing and infusing equity Government of Rajasthan infused INR 1,500 crores of equity in this quarter its share. Correspondingly, HPCL converted INR 4,300-odd crores of the subordinate loans into equity this itself will lower the interest burden about INR 350 crores. We are expecting to make other equity calls in the next 1 or 2 quarters and getting the total debt burden down. An apples-to-apples comparison, I would say that we'll probably get the debt burden down by INR 1,000-odd crores in the next -- sorry, interest, not debt burden. I stand correct, the interest lower INR 1,000 crores, which is a significant improvement over last year. In terms of working capital, we've got working capital remits revised now that it's an operational refinery, the rates lowered. We've also got the -- the state is committed for about INR 1,100 crores of interest-free loan per annum for, I think, 15-year period or something. That money has started flowing in already we have received the first tranche. We are giving it in 3 tranches that we have received the first tranche of INR 375 crores. And the next 1 is due next month. So a lot has gone into restructuring the financials now that the refinery is in operation and getting it leaner so that we can turn towards more profitable operations or quickly come to profit. Overall, we are working on both physically and financially making the asset work for our shareholders. We are very excited on Rajasthan. We are very bullish on it. All of those monetarily basis. Just for context, yesterday, 15 TMT of products actually were shipped out of that refinery. 3 months ago, nothing was being shipped out. In October, we will ship out over 400 TMT translate that into revenue. This asset will produce a revenue of over INR 4,000 crores in the month of October itself. And if the luck holds it, again, I'm not -- I'm just saying it as a -- sharing our excitement rather than as a guidance. Just in the month of October, we expect to be PBT positive on the refinery. This is not a guidance because it's in early stages, the numbers change month-on-month, depending on which crude you are running, but we were very excited to see an asset of this scale can turn in a PBT-positive month, so early rate cycle and bodes well for how we are planning about it. Moving on to the other big asset, Raf, it's working stagily. As you all know, we've had challenges in adjusting to the technology. It's the first unit of this technology globally. -- even the licensor is finding it difficult to fully stabilize it, but we are getting there. We've been able to consistently run at a 60%, 70% capacity, and we are gradually improving our understanding of the asset and how to take it into the sweet spot zone. With all the efforts we have done, I think we are getting there. You will have a logical question, is it giving the $2 to $3 uplift? No, not as yet. But we would get there. There are periods when it's touched close to a dollar per barrel uplift. In October, we are expecting 65.7 per barrel uplift and translating to the GRM of about INR 500 crores. So we're starting to spin off money, not as much as we want, but we will get there. To focus areas needing to increase the utilization. We actually upping and making it more consistent so that we can have longer runs in the sweet spot zone. Taesa, but we are very, very confident that it's going to give us moment we are able to get it into the sweet spot and run it consistently well. It's going to spin a lot of money. The third major thing I wanted to highlight on summaries here. We have always declared this in all our analyst call. This year, we delayed the start to second quarter. In the results, we've already declared that there is INR 327 crores of accrued number translating to about $0.18 per barrel. On a run rate basis, we have locked in about INR 600 crores, INR 700 crores because I'm sure you would have a question that are we going to meet our numbers. So we think we will get to the guidance we have given. This year, we are addressing some of the more fundamental things. Just to give you 2 examples, how do we agree all of our metals buying across, we're doing the initiative on that. Can we buy a catalyst differently, looking at ratio, all of these which are fundamental steps in trying to improve the operations. We have also -- as part of some -- we've also done some interesting initiatives of moving intermediates around to release capacities in our refineries. The fourth major update I wanted to give you was on the digital progress. There is very strong progress on that. We are just launching out -- implementing a new supply chain tool, which will upgrade all our supply chain optimization capabilities and make it enabled. That exercise is underway. We have, in the last few months, upgraded our crew buying platform. Multiple AI use cases are being used across businesses. And we are also saturating digital dash automation tools across our BUs, for example, using RTO APCs across all our refineries, whichever unit we want to do it, we complete it this year. Similarly all our LPG bottling plants are being automated. And by end of this year, we will have very smooth -- we will have smoother operations on those. Just to give you how prevalent this is, we just ran a Hackathon across our organization, digital Hackathon. We have 1,600 participants, which is 1/5 of our organization from the youngest to the most tenured and most aged people all participated in it. There are 30 such ideas, which were the finalist and of which 25 are actually being implemented by our teams internally. Let me move on to a few highlights on marketing. As you know, we are building a retail transformation. We call it Project [indiscernible], 2.0 is under underway. The PPO targets, we are actually ahead of the target. So this year, we are not making ourselves on TPO targets because given the high -- the market situation, a lot of the private sector volume has shifted to Ms. But nevertheless, the foundational steps are going on. There are some other very interesting initiatives which are underway. On nonfuel retail, I'm happy to share that about 10% of our pan-India retail outlets have nonfuel retail activity. This is up from 5.5% at the beginning of the year. So there is a significant movement in each of these initiatives, and they are revenue accretive, and some of it will start showing up regularly. On branded fuels, we remain the market leader in branded MS and also pushing some -- for the last 2 quarters, we are the market leader for branded Ms. And last time, we had talked about a new product on LPG Navya, which we had launched. It's a composite LPG cylinders. All 3 Cs have launched it. But right from the day 1 of the launch deal today, HPCL is the market leader on that. It's a different way we are marketing that. and I will also do a sales pitch. It's booked to cook in 90 minutes. Some of you can order it for your homes. I'm sure we'll enjoy the premium experience. We are on track to target about 1 lakh primary sales on Navya by Diwali. The other initiative on marketing, I wanted to talk about was Chhara. We have increased the flow of cargoes. I think the terminal now works about 10 months a year, there is still a bit of mechanical stuff to be done in terms of aligning break waters, et cetera, because the waves are unpredictable there. But we are now starting to unload cargoes in H2, we are expecting 5 to 6 cargoes depending on market, how the market would be. It would give us about 15% to 20% utilization in Interestingly, we've also figured out how to make better use of this asset. And of late, we have been picking up opportunity cargoes backing the set. So moment. Just our Chhara and pulp gas purchase, which Chhara allows us, we are expecting to be cash positive for this full year, not the terminal, but the mill plus natural gas buying, which we are doing. -- which actually we wouldn't have done if we can't have the terminal. So it's a positive sign, and hopefully, Chhara will turn around fully next year. Touching on the 6 topic, new energies. After our assets got completed last year, the big ones. We have focused -- we increased the focus on our solar and the green portfolio, but we are only doing it for internal use. We are not doing any third-party renewable at least the solar or wind. We now have a line of sight of a gigawatt plus of portfolio over the next 2 years. 275 megawatts is actually running, this wind and solar, another 270 megawatts, if I remember correctly, is of solar plus BESS is under construction and another 500 is on development. And I again reiterate, this is all for captive use. We are not doing third-party renewable. On CBG, we already have a couple of plants. We have been trying to get our act together in terms of higher utilizations there. Under the GOBAR-Dhan scheme, we have, if I remember correctly, about 10 or 11 plants we have hired, of which 5 are under construction. Next 6 are also likely to go. CBG is one area where we are clear that we are going to be doing -- we are going to be building a platform around it. We've also been focusing a bit on EV charging. And the first effort we were trying to get our infrastructure of 5,500-odd retail EV chargers to be much more effective. And I'll just throw out one indicative number. From beginning of the year to now, our weekly revenues from our charging has gone up 3x. It's still a very, very small number. It will not move your excel sheet, but it is exciting for us that from an asset which we had put in place, we have increased the weekly revenue. We're also continuing our push on CNG. The last point I wanted to touch is a very interesting development. We had, as you all know, we have HP PAY, which is a platform which we have been using for essentially sort of a wallet for our payments. Some of you might be using it. Those who don't please use it. It's a good platform. We have now got TPAP status on that, we can become the first PSU loans to achieve the TPAP status. This allows us to offer seamless UPI payment service and opens up new avenues for customer acquisition engagement, strengthening our digital ecosystem. The many have struggled in the business for creating the platforms, et cetera. We now have a platform HP PAY, which is TPAP enabled, and we will start deploying it much more widely our vision is to transform HP PAY from just a fuel centric application into a broader digital payment and lifestyle platform around our businesses, we are not going to do esoteric things. But around our businesses, we will lose a lot more given that we have a TPAP status now. So that was a quick summary of where we are. We do have short-term challenges. Crude I just checked on the TV screen in my room before coming in, it was at $114. That's brent was $114, it's nominally higher numbers. we have challenges. We are fighting them. But in parallel, as you could see from some of the negatives here, we are getting HPCL ready for the future. We are absolutely committed to transforming ourselves and creating a stronger HPCL and creating greater value for our shareholders. I'll stop here. Thank you for your continued interest in HPCL and look forward to all your questions. And those of you who have put in your flex reports on the performance I received some of them, I have gone through some of them. So thank you for your quick judgments on our results. Thank you. . Varatharajan, back to you.

[Operator Instructions] The first question is from the line of Probal Sen from ICICI Securities.

Congrats on a strong set of numbers. Just wanted to understand 2 things. Firstly, as far as the crude sourcing is concerned today, not just on mix, I just wanted to understand what is the effective cost that we are basically sourcing to that, in the sense that is there -- I mean how much of an inherent premium is now built in, if you assume brent as a benchmark, Brent plus how much dollars a barrel are we having to pay as Indian companies? Any range you can share that would very useful.

Okay. That was one. And you said 2 things. .

Yes. And the other thing was basically in terms of what is happening in Q3, you did mention that the short-term challenges. There's obviously been quite a sharp reversal back to fairly high marketing losses, I would presume as well as higher crude costs and LPG prices. So if you can kindly share what was sort of the average LPG rise that we saw in Q2? And what are we seeing right now? And how much impact does it have on the outstanding subsidy losses as far as LPG is concerned, just the general operating environment, how it has turned in the third quarter?

Great. And thanks, We, in our place, have a wager on who's going to go first. So -- now the good point is nobody puts on wager because your question is always the first one. But thank you for your continued interest in HPCL. Two questions. Crude sourcing. I wish I'll give you a straight answer on this one. Actually, I would say crude sourcing is like the wild west right now. It is very unpredictable, very volatile, which actually makes it difficult for stable companies like ours to work on it, but I'm very proud of the way our processes work. You always found -- and I'm not going to give you specific numbers, but we founded to see sometimes what kind of discounts you can pick up on something. And yes, the freights are very high. at time. . So it's a very difficult thing to predict. And for same cargo, I'll just give you an example, Cargo X floating around being offered at a particular day, 3 days later, it goes $10 higher just on the premium. 5 days later it might be cheaper. So timing has become a lot more. I think what is more important is how it has shifted, the pattern has shifted we used to buy a lot of term and actually a lot on FOB. This is the way we are looking at and also how the market is shaping up, we are buying a lot on delivered -- in fact, almost everything is that basis right now because at the end of it all of us are conscious in terms of what is it costing me and how does it fit in? So the sourcing varies, as you know, we are looking at what is the cheapest available crude, and there are some times when you have to really look at emergency crudes, but it is also because the shipping lanes are very disruptive. So it will be very hard to discern a pattern from this, all I can say is the crude premiums and landed costs, if you look at it, there are times when there are premiums. There are times when you can even pick it up at discounts. It's a very wild west right now. On Q3, obviously, with the high crude prices, they are a challenging number for us right now for everyone. And we do hope it comes down. It is obviously leading to under companies. You guys are good at math and can quickly do that. specifically on LPG because that's a much more widely recognized number. Just to give you a sense, October under recovery was INR 245 per cylinder, November, it has gone to INR 327 per cylinder, I don't know, Srividya, you have the Q2 number or...

So the total under recovery for the Q2 has been close to around INR 500 crores has been under recovery and the buffer has increased to INR 18, 49 crores is a total buffer balance, which we have, which is receivable from them.

I'm sorry, the audio wasn't clear. November, you said the under recovery has gone to INR 340 per of cylinder?

INR 327 November, INR 245 October. .

Understood, sir. That is good Okay. Sir, one last question, if I may slip in again staying on the sort of crude purchases, what you did mention, obviously, makes more sense. But as a trend, I mean, effectively, is it fair to say that the effective premium on whatever benchmark group, whether it's the Indian basket or an there is obviously still an inherent premium that is there on the delivered cost of crude much higher than what it was maybe even 3 months or 4 months ago. Is that a fair way to look at it?

It's very difficult to make that judgment. It is so volatile, it's very difficult to make that judgement. I won't say yes or not to that statement because if I say yes today and tomorrow it might be different, it's actually a very volatile situation on how the market is reacting.

The next question is from the line of Vivekanand from AMBIT Capital.

You are currently receiving compensation for LPG under recovery till end of March 25, about INR 660 crores a month, right? That's been a very helpful thing from a working capital standpoint. Is there any dialogue you've opened up with the government for extending this compensation beyond the current month? That's question one. And secondly, did I get this right on the Vizag upgrade commentary. You said that the current uplift is between $0.6 to $1 a barrel. And you are targeting the full benefit of the upgrade. Last time you had said March, right? Is that still on? Or is there any change in the uplift that you will get for that?

Thank you for the questions. On the -- yes, you're right, we said $0.71 and we gave the guidance this month at $0.7. And there have been -- we hit $1 in a period some time ago, depending on crude prices and other things. So it's literally turning in sales expected benefits right now. In terms of full, I think the guidance is exactly what we have said earlier. We are holding towards that. Having said that, we've been very transparent with you all in the call that this is a really, really complex asset to look at it. It's like doubles or [indiscernible] thing. So -- it is going to give a lot of money, but it is a challenge. Everybody is mastering to run that asset. We are getting there. We are hopeful of getting there in March or even before that. But we are not going to start streaming at our lever if we get there in April because everybody signed the best to do that. And once it gets stable, we'll -- nobody has run this technology globally, as every license is finding new things. we are getting there. Every month is better than the previous one. That gives us hope. On what's being discussed with the government, I don't think it's the right forum for me to comment on that entire thing. I think as Srividya just said, there is a recognized number of buffer, it was recognized by the government in the past. There were monies which were given on the entire thing. And all you can rest assured is the management of your company and other companies are all taking the efforts which are required, what specific dialogues are going on, I will keep that outside. It's not the forum to discuss those. And not my remit to also comment on what government is going to do in that but all efforts are being made is all I would say.

Sure. Just one small follow-up on the Vizag upgrade. You said that the complication is on the technology and stabilizing it. Can you give a bit more details on the markers that you're monitoring as far as the licensor and you are concerned in ensuring that you can get to the 2 markers, utilization and then consistency?

Yes, those are the right ones we are looking at. See, it's a high pressure, high temperature, the action where you are taking some of the hardest bottom of the barrel things and breaking it up. And if there is a follow-on question then I'm going Bharathanji to answer because he's going to give you a long technical answer on it. But I think we are getting -- we are figuring it out how to keep all parameters on the reactor in control to make sure it gets to a consistent trend. That's the layman's way of looking at it. That's why I'm answering it. The technical question, we can have an off-line discussion also with Mr. Bharathan, he will give you a very detailed answer. We are getting better at predicting operating parameter of this will lead to this. And we -- I remember, we told you earlier that we have done -- deployed a digital twin also as we are populating the digital twin also on this, we are starting to get better and better at that entire thing. And any deviations on high pressure and temperature, we are able to catch them early, keep them into the control zone. So there's nothing wrong with the reactors, there is nothing wrong with the infrastructure around it. But it's just that you have to go through the stabilization period because it's a highly complex asset. And just to clear, sir, because that's the part which are operating is it's a simpler refinery that we roughly is a much more complicated. But we are getting better on -- it's about operating parameters, and we're very hopeful that in the next analyst call when we do quarter 3, we'll be able to report utilization and higher GRM impact.

The next question is from the line of Sabri Hazarika from MK Global.

Congratulations on good set of numbers. I have 2 questions. Firstly, if I look into your unit cost per barrel in terms of both material cost as well as purchase of product. What we noticed is that between Q1 and Q2, there is almost a $30, $40 per barrel decline in the sorting cost, despite dated Brent declining from, say, around $104 to $97 per barrel. So there was like sharp reduction. I mean I was of the view that Q1 could have had older crude which were -- which are sourced way before the price happened, and that's why the cost would have gone up Q-o-Q, but some of it seems to have fallen. So any color on that? .

Yes. So if you recall the last analyst call, we did talk about the fact that we carried a bit more of inventory at the end of quarter 1 because of your certain the units have changed or stopped in between, primarily from the rough carried a lot more inventory where we had taken a mark-to-market. So that actually helps us a bit in July. If you have any specific then I can ask Srividya to give more details, but...

No, just that you were able to like benefit from that time line, right, when there was some sort of, that is towards the end of June and probably early part of July and also some part of August. Was that the reason? .

Yes, exactly. Exactly. And we had -- actually, if you look at how the crude cycle went, we September, the crude cycle turned again. In July and August, it was reasonably okay. By end of July, started earning -- sorry, end of August started earnings so that September deliveries happened at higher price. So we actually had very, very strong July and August, it's September, which probably had a minor negative impact on the -- or pull down the numbers the way July and August is very, very strong for us. Primarily based on the momentum we carried from end of june.

And second, just a small -- a couple of small questions. First is this INR 470 crores of share of profit from associates and JV, how is it distributed between HMEL, HRRL and MRPL? .

See, HRRL is not giving anything right now. The first year, we are not even anticipating anything to come out of it. it is going to be a negative on our numbers -- consolidated numbers in the next year. A lot of it is between HMEL and MRPL, And maybe Srividya, you might have some numbers.

For the HMEL, it's INR 1,300 crores for H1.

INR 1,400 crore for H1, that is HPCL's share, right?

Yes. Yes. INR 1,300 crores.

1-3.

The next question is from the line of Amit Murarka from Axis Capital.. .

Congratulations on a strong result in this environment. Just a first question on HR that you mentioned that it has been restructured. -- and interest costs came down, I think, 105 bps you mentioned. So what are the changes in the terms of the debt? Like also if you could highlight if any corporate guarantees have been provided from [indiscernible] kind of bring the interest cost down.

So the net end result was, it is the same terms. Earlier it was project finance, we shifted it to operating. And in the end, it was I'll not go through the whole journey because there are different techniques used in between. But in the end, it was mostly the main consortium, same terms there. And 3 new bankers were introduced in it to balance out -- those are the 3, leave it to us in terms of how we handled it. But in the end, converted project finance to operating and by induction of 3 new bankers and some -- every banker also wants this on their books now. So you could use that to get a lower rate.

And no perfect guarantee.

No perfect guarantees. It's the same whatever for the earlier agreement same hold true.

Sure. Got it. And also on the Vizag RAF unit, like I believe for like in case the asset kind of stays longer to stabilize, it's already been quite a long time. Just wanted to understand, is there any penalty clause or anything on the technology provider for, let's say, the delivery,if technology doesn't come through? .

Yes, yes. So 2 parts to it. One, there are obviously all these contracts have analytic losses. But we are not even remotely hoping or planning to invoke any of those because my sensor is working with us, and we are very close to the sweet spot. So it's not that the technology is not working. It's just that the parameters have to be there. And you also have to realize that in this period, even the feed which has to go in, we were never able to buy predict the best available crudes from the -- what we would want to optimize. We were running crudes at times. So sometimes the crude has lesser of 2 parameters there. So it's not a case that our technology is that it's just that it's taken a bit longer to get it stabilized. We will get there, and we are very close to the sweet spot. So we are not even remotely thinking on or license patent license for that. It's -- they are handing up. There is a lot of experts working on it, and we are all -- we know the day-to-day improvement on the entire thing between directory fines and we keep an eye every day on it and it's getting better and better. So we are going to see the plant of this investment come out very soon. It's not that the technology but it's just getting there. It's taken a bit longer to get the affected.

Got it. Got it. That's helpful. And just a last question, if I may. So -- on the Rajasthan Refinery, by when do you expect to achieve optimal utilization and operating rates, particularly given the strong refining environment right now? .

So at the earliest, as you can imagine, because we also understand the strong refining margin. That's why I made the comment that October could actually be PBT positive for the refinery, which for a greenfield refinery, in the first 4 months of operation would probably be unheard of -- I can't think of too many examples of people getting to that. Having said that, we are expecting to stick to the -- like we are hoping, stick to the guideline which we had given in the last analyst call, that by end of quarter 3, the refinery section will run at full steam. There's only 1 unit which has to be completed. That unit is going for audits just around Diwali time, and commissioning cycle start, it takes about 1 month to commission it. So sometime in December, we should start getting the high sulfur crudes in once that unit stabilizes, we will run it at full refining capacity. 8 to 8.5 million tonnes per annum equivalent run rate, we'll be able to run. Petchem numbers will kick in later. But given where the cracks and the product prices are right now, we are less worried about that in numbers because we have that window of next 6 to 8 months. If we can just sell diesel, LPG, naphtha, effective at getting good prices, we can get good margins going into. And we want to absolutely capitalize on this.

The next question is from the line of Mayank Maheshwari from Morgan Stanley.

The first question was, I think addition to the earlier question around freight rate, sir. What are you seeing in terms of increase in freight rates for December loadings versus what you would have seen for the last quarter? And as you said, a large part of your cargos are on the ES basis, can you give us a percentage of what it was in the U.S. in September quarter versus what you're kind of getting for forward loadings beyond December?

Yes. I think the thing is just trying to see if we have the second data on the second question. On the freight rates, if you look at from quarter-to-quarter basis, definitely there is an increase in the showing me some numbers, so maybe she will read out some numbers and data. There's definitely an increase in the freight rate. But man, what's also very interesting is not the impact on landed prices might not be as much as you guys making from outside because see the producer oil are also stuck. So at times, the astronomical freight rates, which you see, you can -- actually, if you strike a good deal, you can get it almost managed on the producers. So the net back to the producers in many situations, especially those who are stuck or where there is stranded oil right now. The netbacks are much lower than what is in the public domain in terms of netback. I think that is in terms of how much is debt Again, I don't know the specific numbers, and I have asked me time, they have the numbers specifically, is they can give you details. But from our practical purposes right now, almost everything we are looking at landed basis, except where we think we can send a ship and pick it up cheaper. -- or earlier, it would have been 50-50 or even less than that have been landed delivered at my thing. But right now, it's also partly we don't want to take the risk of somebody getting the chips on the way, et cetera. So a lot of it -- it becomes easier for us to think in terms of land date. But maybe Srividya, you'll have some things to add.

Yes. So just to add to it is that the freight costs have almost doubled between Q1 and Q2. So it's the overall guidance, which is there. And for a Swiss map, which was probably coming at around $4 per barrel has now gone up to even $9 per barrel. So this is the kind of the increase which has happened as regards to freight rates are concerned. As Chairman was mentioning, yes, we are looking at most of the cargoes only on a landed cost basis. And so the freight rates are really increasing.

And I think the second question on was also related to the capital structure of Rajasthan Refinery in a year or 2's time when you want to kind of stabilize the capital structure, where do you think the net debt kind of fits and the ratios kind of sit on the capital structure?

Yes. Mayank, we haven't yet done that projection maybe by next analyst call or whenever we have a chance to meet you separately, we can have a discussion on that. Right now, we are just ranging it into the initial projecting. We have not yet got to level on how fast we can get the debt under lowering the debt. It will also depend on a diesel cracks hold like this for a year, then we will be actually in a very, very good position. Considering this refinery is going to put into 4 million barrels -- 4 million tonnes per annum [indiscernible] .

Okay. So I think just on that, I think if you kind of look at your October, as you said, your payment at PPT, what was the DRM you were getting in October for Rajastham?

Hello. Sir, you're not audible.

Can you hear me?

Yes, I can hear you. Just a second. Ladies and gentlemen, the line for the management have been disconneceted. please hold while we connect. Ladies and gentlemen, the management line has been reconnected. Over to you, sir.

Sorry. Sorry, folks, we were disconnected and there was some trouble in getting reconnected. I don't know, Mayank, if you caught the answer fully if there is something which is not answered before we got disconnected...

So Vikas, I think you were talking about the capital structure change and I think it got disconnected from there. So you said that you're still working on it and then you kind of stopped.

On the next quarter on it, right now, we are very focused on just trying to see where the physical production numbers land how is just making sure all our -- we -- as I said earlier, we're starting to evacuate 400 TMT. Now we have to just make sure our own supply chains, everything is there. Pipelines are working fine. So a lot of effort has gone on to that. We started to look at profitability, I did comment that October, we are hopeful of our PBT profit October, which is -- it won't be the guidance for the whole quarter because there will be the flips around it. But next quarter, we'll give you some broad sense on how we think the debt repayment would happen.

Once we know...

Do you want to give us the GRM for October?

October, I already said first 18 days was 16.1 or somewhere there post SAED. The 12% for quarter 2, now running at 16% currently. Light sulfur crudes. We'll probably be able to flip to HS in December. I will give another lift up of few dollars. Once we do that, we anticipated today's prices and cracks, et cetera. a 20-plus run post December. We're quite happy how it's shaping up now after obviously, the post, but a lot of effort has gone into just getting everything back. And if you guys track the sector, you can map which refinery in India got all the units literally going in 3 or 4 months. I think that our teams [indiscernible] job on that.

Just once we get a little more clarity on the cash flow projections on the consistent refinery performance, then I think it would be the right time for us to look at how to do debt repayment and then how do we bring back or bring down the debt equity ratio from 2...

The next question is from the line of Maulik Patel from Equirus Securities.

Sir, you mentioned about Chhara terminals utilization and you have some of these long-term contracts which you have signed in the past. All this volume at Chhara, which is there is part of that long-term contract? Or is it -- are you looking -- are you booking any spot cargoes and bringing the volume there?

So it's a mix of those. The long-term contracts actually initial few years were slowly ramped up because we did not want to overcome it. And also, there were disruption in long-term contracts in a couple of cargoes. Of late in the last month itself, we've done 2 or 3 spot cargoes. And as I mentioned, having that asset actually is giving us a lot of flexibility on opportunity cargo. Just 2, 3 weeks ago, we picked up an opportunity cargo at a significant discount to the market because nobody else in India had that ability to absorb that cargo at that time and the seller needed a ship back. So it's allowing us to play the opportunity game quite well. So we are happy with the way it's shaping up right now. Of course, we want to get the utilization to a reasonable level, 20%, 30%. At that, I think a terminal combined with your gas sales gives you a lot of flexibility and opportunity to make money. So it's shaping up.

Got it. Sir, and the last question, which you said that HRL ramp-up, which you are probably looking in a quarter or 2 complete full ramp-up. So at that time when the full ramp-up take place, what kind of GRM you are looking higher than the, let's say, benchmark GRM, whatever the benchmark GRM at that point of time, what can be an uptick -- I mean higher number for the HRL given some state incentives are also part of the project? What number should take it for the HRRL?

See, right now, we just -- question Mayank had asked earlier, we have just given a broad sense that it upwards of 20%. We have not added the state incentives and all those calculations. But see, once the refinery settles down, just purely on the refinery section, we can then focus on getting our operating costs down, our energy efficiency even sharper. The results will start coming in and it's a very, very advanced refinery. And moment it settles down, which it will in the near future, it will start giving results. But I already gave the answer to Mayank's question earlier that we're looking at 20% plus. And till now, we have not done the calculation of state incentive means this and that. We're just looking at the broad crude to the product equation and saying at least a $4, $5 lift up on the October GRMs. It could be more also.