Analysts feel that the gross refining margin (GRM) of Essar Oil would continue to match that of Reliance Industries (RIL) as the former has increased the complexity of its refining units.
Essar Oil raised its refinery capacity to 405,000 barrels per day from 300,000 previously and its complexity has been raised to 11.8 from 6.1. RIL operates the Jamnagar refinery, which has a capacity of 660,000 barrels per day and complexity of 11.3, as defined by the Nelson Complexity Index.
GRM is the difference between total value of petroleum products and price of crude, and is the key profit indicator for crude oil refiners. As the complexity of a refinery increases, the refiner can earn more GRM subject to other factors remaining constant.
For October-December 2012 period, Essar Oil reported current price gross refining margin (GRM) of $9.75 per barrel, as against $2.82 a year ago, comparable with Reliance Industries’ GRM of $9.6 per barrel in the quarter.
Essar Oil aims to maintain this GRM in the coming years. Meanwhile, the firm recognises its biggest challenge and has plans of replacing its high-cost rupee loans equivalent to $2.27 billion with external commercial borrowings.
The firm intends to exit from the corporate debt restructuring programme by March and subsequently raise the funds from overseas market.
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