Bharat Petroleum Corp Ltd (BPCL) Q2 FY22 Earnings Concall Transcript

Bharat Petroleum Corporation Limited (NSE: BPCL) Q2 2022 Earnings Concall dated Oct. 30, 2021

Corporate Participants:

Piyush Borania — Senior Manager Pricing & Insurance

VRK Gupta — Director, Finance

Manoj Heda — Executive Director Corporate Finance

Jenny CL — DGM Pricing and Insurance

Analysts:

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Probal Sen — Centrum Broking — Analyst

S. Ramesh — Nirmal Bang — Analyst

Kirtan Mehta — BOB Capital — Analyst

Amit Murarka — Axis Capital — Analyst

Mayank Maheshwari — Morgan Stanley — Analyst

Vidyadhar Ginde — ICICI Securities — Analyst

Sumeet Rohra — Smartsun Capital — Analyst

Sabri Hazarika — Emkay Global — Analyst

Manikantha Garre — Franklin Templeton — Analyst

Iqbal Khan — Edelweiss — Analyst

Amit Rustagi — UBS Securities — Analyst

Vinit Joshi — Goldman Sachs — Analyst

Saurabh Handa — Citigroup — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Bharat Petroleum Corporation Limited Q2 FY ’22 Earnings Conference Call hosted by Antique Stock Broking Limited. [Operator Instructions]

I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stock Broking Limited. Thank you, and over to you, sir.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Thank you, Nirav. Good morning, everyone. It’s my pleasure to welcome all the participants and the management of Bharat Petroleum Corporation to this 2Q FY ’22 earnings call. We have with us today Mr. VRK Gupta, Director Finance; Mr. Manoj Heda, Executive Director Corporate Finance; Mr. Pankaj Kumar, CG and Corporate Treasury: Mrs. Jenny CL, DGM Pricing and Insurance; Mr. Piyush Borania, Senior Manager, Pricing and Insurance.

I’d like to hand over the floor to Mr. Piyush for taking it forward. Over to you, Piyush.

Piyush Borania — Senior Manager Pricing & Insurance

On behalf of the BPCL team, I welcome you, one and all, to this post Q2 results con call. Before we begin, I would like to mention that some of the statements that we would make during this con call are based on our assessment of the matter and we believe these statements are reasonable. However, their nature involves a number of risks and uncertainties that will lead to different results. Since this is a quarterly result review, please restrict your questions to the Q2 results.

I now request our Director Finance, Mr. VRK Gupta, who is leading the BPCL team for this call to make his opening remarks. Thank you, and over to you, sir.

VRK Gupta — Director, Finance

Good morning. Seasons greetings to one and all. Welcome to the quarter two post results con call. Hope you were able to go through our results for the quarter gone by. We would like to highlight a few points relating to the past quarter. Indian economy is assumed to ravaged growth of 9.5% in ’21, ’22, in which agricultural and allied activities, industry and service sector are likely to register a growth of 3%, 12.3% and 11.4% respectively, due to the base effect of last year.

As the country recovered from the impact of second wave of COVID, BPCL recorded the highest sales growth in MS at 15% for quarter two when compared to year-on-year basis in the PSU pace. BPCL had gained market share both in the urban and highway sector, where we are traditionally strong and in the rural market through strategic network expansion and focused retention. With the commissioning of the MSBP unit at Cochin, we are well placed to cater to the increased MS demand without resorting to any imports.

Similarly, for HSB [Phonetic] also, we stood first amongst the PSU by growing at a rate of 8% as compared to the Q2 of the previous year. Freight transport will continue to be dominated by HSB as a fuel in the foreseeable future. As on 30 September, 2021, BPCL has the second highest number of outlets at 19,251 number and continues to have the highest throughput pet outlet among the PSU peers.

Further, we have improved our market share almost close to 30% per MS and HSB, in the retail space at the end of quarter two of the current fiscal year. BPCL is aggressively adopting emerging technologies to leverage opportunities. I would like to spell out a few initiatives that have been taken by us in the retail space to further improve share of business. During the year, we propose to expand CNG stations network from 682 — 687 to 1,000 per year end. And in the EV space, we are already have 7 battery charging stations and 45 public charging stations in 11 cities.

For 54 charging stations, installation work is in progress. And we also propose to make our retail outlets and energy stations almost around 1,000 retail outlets we want to make it as energy stations in the near term, which will cater to all forms of energy needs of a customer, be it MS, CNG, REV. [Indecipherable] has been launched in 60 facility so far to give the control of building the fuel in the hands of the customer through digital experience. BPCL has migrated from conventional point-of-sale machine to and android based POS machines that is well integrated with MPVs for correct filling and ensuring right quantity.

We have covered all the major ROs, almost 97.12% of our own network, with APOS machine that is Android based POS machines. Moving to other major products. In LPG, BPCL grew by 4% as compared to Q2 of the previous year. In case of ATF, we grew by 24% as compared to Q2 of the previous year, as we are primarily focused on the International sector ATF sales is active pick up as scheduled international flights are still not allowed to operate.

With global gasoline demand at pre pandemic level, tight global supply with reduced exports from China have led improvements in MS crack to average of $9.7 per barrel in Q2 from an average $8.05 per barrel in Q1 of FY ’21, ’22. In case of HSD, steep increase in LNG prices, coupled with winter heating demand led to elevated cracks in HSD at $8.13 per barrel in Q2 from $6.9 per barrel in Q1 of current year.

When we compare Q2 to Q1 of current financial year, the Indian basket of crude oil has increased to $72 per barrel from $67 per barrel of Q1, and the rupee has been hovering around 74 per dollar. BPCL GRMs have improved to $6.04 per barrel in Q2 as compared to $4.12 per barrel in Q1 of the current fiscal. The refinery throughput was at 104% of the nameplate capacity in Q2 as compared to 82% for Q2 in the last year.

The throughput for both the refineries was at 7.16 MMT for the quarter ended 30 September as compared to 5.63 MMT in Q2 of previous year. The refining throughput has considerably improved due to the increase in demand post second wave of COVID. The distillate yield in Q2 of current year is 86.45% as compared to 87.62% for Q2 of the previous year.

For Q2, the revenue from operations stood at 101,632 crores as compared to 65,912 crores for Q2, mainly by increasing the volumes as well as increase in the prices. The profit after tax at 2,694 crores as compared to 2,248 crores in Q2 of previous year. During quarter two, BPCL has acquired 2.69 crores share warrants of the BORL held by government of Madhya Pradesh for 72.65 crores paving the way of the merger of the company with BPCL. Further, the Board in its meeting held on 21 October has approved the amalgamation of BORL with BPCL subject to requisite approvals

Again, at the capex target of 10,000 crores of finance a year, we have almost spent 6,554 crores, during the 6-month period, this includes BORL investment of 2,472 crore. Our borrowings as on 30 September has significantly reduced from 26,315 crores level as on 31 March to 21,000 crore. We are excluding the lease obligation amount around into 7,900 crores.

The debt to equity ratio as on 30 September at the end of Q2 reached at 0.44 as against 0.74 at end of Q2 of previous financial year and 0.3 at the end of June ’21. As of 30 September 2021, we have only around 120 crores outstanding, which is receivable from government of India. The [Indecipherable] SKO PDS and only marginal subsidy in LPG during the current quarter gone by.

I now invite for questions and for any clarification. Thank you.

Questions and Answers:

Operator

[Operator Instructions] The first question is from the line of Probal Sen from Centrum Broking. Please go ahead.

Probal Sen — Centrum Broking — Analyst

Thank you for the opportunity. I just have two questions. One is that if we look at refining throughput, obviously, it has definitely improved from Q1 this year and as well as from the very low levels within H2 — of H1 of last year, rather. Any timelines that you can see where refining throughput will get back to the 8.3 million, 8.4 million tonne kind of trajectory that we are consistently doing let’s say over 2Q through to 4Q of FY ’20?

By when do you see demand strengthening to that point where we can achieve those kinds of throughputs? That’s my first question.

VRK Gupta — Director, Finance

Yes, if you see, our peak throughput we have issued in ’19, ’20, which is almost 31 MMT per year, that means almost close to 8 MMT per quarter. So this quarter, we have issued 7.16. And current month, based on the current trend, we will be crossing beyond 100% of my nameplate capacity. What we are expecting Q3 will be around 7.5, 7.6 level MMT. If the demand continuously growing at this level and HSD growth comes back to the positive level, most probably, for Q4 we may reach the prepayment [Indecipherable].

Probal Sen — Centrum Broking — Analyst

Okay. So for FY ’23, we can safely assume that everything going well, no other setback, we should be getting back consistently to more than 8 million tonnes, right?

VRK Gupta — Director, Finance

Everything depends on the HSD growth. Still, we are not in a position to cross the pre-pandemic level of HSD growth September ’19 levels. We are expecting in case existing normalizes, the growth will come back by end of this year. If that happens, definitely our throughput will come back to the normal level.

Probal Sen — Centrum Broking — Analyst

And the second question, and I know that you don’t comment on specific marketing margins. But if I were to derive that number based on the refining data and all the other segments, the blended marketing margins seem to have actually strengthened quite a bit in this quarter compared to the last quarter in Q1. Any specific reasons for that? Or it is a function of improving demand that has sort of driven this?

VRK Gupta — Director, Finance

I think there is no specific reason. You have to see the margins over a longer period. You cannot compare only on quarter-on-quarter and month on month basis. The same stand we are taking. On a longer-term basis, we’ll be in a position to retain our margins.

Probal Sen — Centrum Broking — Analyst

So is it fair to say, sir, the average blended margin, let’s say, for H1, what has been there, we can expect broadly a replication over H2 as well if things are going — everything else remaining normal?

VRK Gupta — Director, Finance

Hopefully, if the crude prices are stabilizing at certain levels, or if there is any improvement in the crude prices, means that [Indecipherable] crude prices, maybe definitely on a longer-term basis, we can retain the markets if there is no further increase in margins.

Probal Sen — Centrum Broking — Analyst

Got it. So one last question, if I may. Any clarity from SEBI in terms of the open offer or not for the listed investments as part of the divestment process? Anything you can share with us?

VRK Gupta — Director, Finance

There is no development happened in this particular aspect during this quarter two. Our intention is to continue our stake in IGL and Petro and LNG, because these are the strategic investment. So we are still working on with government of India to ensure, to continue our stakes in these companies and how do we avoid the open offer level, but there is no development happen in this Q2.

Probal Sen — Centrum Broking — Analyst

There’s no regulatory clarity as of now is what you’re saying?

VRK Gupta — Director, Finance

There is no much development happened as it’s happened in Q2.

Probal Sen — Centrum Broking — Analyst

Got it. I’ll come back if I have more questions. Thank you so much and a very happy Diwali to all of you.

Operator

Thank you. [Operator Instructions] The next question is from the line of S. Ramesh from Nirmal Bang. Please go ahead.

S. Ramesh — Nirmal Bang — Analyst

[Indecipherable]

Operator

Ramesh, sorry to interrupt you, your voice is not coming clear.

S. Ramesh — Nirmal Bang — Analyst

Can you hear me now?

VRK Gupta — Director, Finance

Yes, please.

S. Ramesh — Nirmal Bang — Analyst

Good morning, Mr. Gupta, congratulations on assuming charge as Director Finance and good morning team. I just have a couple of thoughts on the operating performance. Could you see there’s a divergence in the margin — refining margins in Mumbai and Kochi, if you compare it with the year ago levels? So how do you explain the increase in Mumbai versus the decline in Kochi. That’s the first question. And then how do we read this increase in the high sulfur crude as a percentage of the crude processed?

VRK Gupta — Director, Finance

For Q2, if you see the refining margins, both the refinance put together, average is 6.04 [Indecipherable] 6.54. Definitely Mumbai refinery, the refining margin generally it will be higher as compared to Cochin refinery, mainly, we have some value-added units in Mumbai refinery, mainly and another products. And otherwise, Cochin refinery even we have a trend to buy a different of around 1.83%, which should be favorable for Cochin refinery, but at the same time, the Saudi Aramco OSPs were higher leading to setting up the game in what we have in terms of brent differential mainly for sulfur. Otherwise Cochin would have been better than MR Mumbai. But whatever brent differential we have seen in Q2, but it is partly offset with setting up with Sadia Aramco OSPs were higher, the premiums.

S. Ramesh — Nirmal Bang — Analyst

And the second thought is, in terms of your expenses, there’s a sharp decline in staff costs. So how do we see the trend for staff cost going forward? Will it be keeping in line with the second quarter numbers? Or will it keep changing depending on the extent of DRS?

VRK Gupta — Director, Finance

If you compare Q2 of previous year, definitely, last year Q2 there is an exceptional expenditure mainly related to the VRS. So after manpower go out and our VRS today, our number of manpower is very lean, and we are expecting at this level it will become a new normal for employee cost per quarter, more or less, it will be in the similar line.

And we don’t have any plans for any new recruitment and the manpower will be in the similar range only.

S. Ramesh — Nirmal Bang — Analyst

Okay. And in terms of the capex plans now, you have done the petrochemical start-up. So when do you see the commercial results of the petrochemical project in Kochi?

VRK Gupta — Director, Finance

EDPP, PDPP, out of 3 units, 2 units already we have commissioned, but only in 1 unit, after commissioning, after running a couple of days, there are some technical issues we are facing. But it is on the stabilization period, we are expecting by mid of November 15, we can tackle the technical problem. Maybe end of November or December, we are expecting the 3 units can come back to the normal operations. Maybe in Q4, we can see a good performance in terms of PDPP output. That is what we are looking at it.

S. Ramesh — Nirmal Bang — Analyst

Yes. If I may just squeeze in one last thought. On the merged accounts you have published for the half year, does it now show the 100% integration of the Bharat Oman refinery after the merger?

VRK Gupta — Director, Finance

In stand-alone, there is no impact of the merger of the ORL in standalone account. But definitely in consolidated accounts since we become 100% subsidiary company, the consolidation happened on line by line basis, it reflects in consolidated accounts.

S. Ramesh — Nirmal Bang — Analyst

Okay. Thank you very much and Diwali greeting to all of you and all the best. I’ll join the queue. Thanks.

Operator

Thank you. The next question is from the line of Kirtan Mehta from BOB Capital Please go ahead.

Kirtan Mehta — BOB Capital — Analyst

Thank you for the opportunity. Just to sort of understand further on the petrochemical projects that has been [Indecipherable]. What is the incremental margin addition that you have observed in the Q2?

VRK Gupta — Director, Finance

Q2, the margins if you asked because the production is not very significant, very small quantity only production has come out. Around [Indecipherable] TMT production has come out. If you ask us in terms of the margins, the prices are very good, but the only thing the product availability is larger in Q2. So the margins may not be very significant in terms of total contribution in EBITDA from petrochemicals.

Kirtan Mehta — BOB Capital — Analyst

Do you still consider it to be adding around $1 margin that you have been guiding earlier?

VRK Gupta — Director, Finance

Yes.

Kirtan Mehta — BOB Capital — Analyst

Average refining margin of the Cochin refinery.

VRK Gupta — Director, Finance

That is what we are expecting even assuming another peak prices of petrochemicals even in the long-term average of petrochemical prices, all 3 units run altogether, definitely that around $1 in terms of the GRM. But however, after removing the expense and other things, NRM maybe lesser than ERM level. But otherwise, we are expecting at GRM level, $1 if you got.

Kirtan Mehta — BOB Capital — Analyst

Understood. And would you be able to share further updates on the divestment of the state by government, what are the events which has happened during the quarter? And what are the next steps from here?

VRK Gupta — Director, Finance

Once again, let me clarify, disinvestment process is handled by government of India by Department of Public Investment and Asset Management. BPCL unit is facilitating the completion of the formalities. We have already opened the data room and we’re continuously providing whatever data requirements coming from the [Indecipherable].

And some of the clarifications, the financing advisor is sending some — for some of the clarification, we are regularly replying for those clarification. So this is the process that is going up. Beyond that, we cannot comment anything on this. Then the government of India has time and again mentioned in the public also the disinvestment of BPCL shall be completed by March ’22.

Kirtan Mehta — BOB Capital — Analyst

During the last call, you had mentioned that the meeting for the bidders with the management of BPCL was the next step. So has that been completed yet?

VRK Gupta — Director, Finance

Nothing has moved in that direction, at least in this quarter, Q2. Nothing has happened.

Kirtan Mehta — BOB Capital — Analyst

And do you still see the Q4 time line being adhered to? Or do you see a risk to the time line? I know it’s again management, but your interpretation of the time line?

VRK Gupta — Director, Finance

We are hopeful. We are hopeful.

Manoj Heda — Executive Director Corporate Finance

As I think I mentioned by Mr. Gupta, the process is being run by government of India. Our role is largely to assist the government and the transaction advisers in facilitating the responses in the data, which has to be provided to the prospective bidders. So I think that’s what it is there from our side.

Operator

Thank you. The next question is from the line of Amit Agarwal from Axis Capital. Please go ahead.

Amit Murarka — Axis Capital — Analyst

So just wanted to check the operational and financial details for 1H.

Jenny CL — DGM Pricing and Insurance

In July, the profit after tax was 213 crores, and the GRM was 6.2. That is Q2.

Amit Murarka — Axis Capital — Analyst

And by when you think the merger should get completed?

VRK Gupta — Director, Finance

Generally, the major process takes place around 6 to 9 months after submission of our application. Within the timeline, you should have let us see how the regulatory formalities moves.

Amit Murarka — Axis Capital — Analyst

And on PDP, if I got it right, did you say that in 4Q FY ’22, you would expect like normal operations and maybe that $1 GRM benefit getting realized or will it be more in FY ’23?

VRK Gupta — Director, Finance

That is we are hoping because mid of November or end of November, whatever technical issues we are facing now with 1 of the units that we can resolve. After that, maybe in Q4, maybe all the 3 units we can run. If That happens – If the prices are at peak level, the DRS will be more than $1. And prices if there is any further softening of the prices of petrochemicals maybe we can keep around $1 GRM.

Amit Murarka — Axis Capital — Analyst

Got it. Sure thank you. That’s all.

Operator

[Operator Instructions] The next question is from the line of Mayank Maheshwari from Morgan Stanley. Please go ahead.

Mayank Maheshwari — Morgan Stanley — Analyst

Thank you for the call sr. Just a couple of questions. First was on the marketing side, if you can just share with us in terms of your market shares around diesel, gasoline and some of the other key products on the industrial side?

Jenny CL — DGM Pricing and Insurance

So for April to September, BPCL in MS retail, we have 28.96% market share. HST is 29.37%. Industrial and commercial, it is 18.61%. I’m talking about half year. And LPGs is 26.7%. In case of quarter, MS it is 29.22%, HST it is 29.91%. INC is 18% and LPG is 26.98%. Overall, we have a market share of 24.32% for the quarter.

Mayank Maheshwari — Morgan Stanley — Analyst

And can you just talk a bit about in terms of your strategy now going forward considering the focus that you were talking about on highways, etc. Can you just talk about of how you’re kind of trying to integrate the new energy side of the business along with the stations and what are the plans around that? And how are you kind of thinking about deploying capex around it?

VRK Gupta — Director, Finance

One is in the marketing side, actually broadly two, three things we are focusing. One is making some of the major retail outlets add energy stations. So this will cater the needs of MSMEs as well as CNG plus the new alternative fuel requirements mainly for energy stations, mainly for charging points. Beyond that — in a large scale, we are putting a good amount of investments in the digital. There is a complete changeover of customer experience. Maybe some of the initiatives recently we have asked that you feel where the customer can make the payments through QR code and they can go to the retail outlet. Yes, they can scan the QR code and they can take the product and it will ensure the correct quantity and the value products.

So these are the digital initiatives we are taking. And beyond that, we are refocusing again on the putting more investment on the convenience stores, mainly for retailing at retail core. So these are the broader themes that we are focusing in retail. Charging stations, putting more gas facilities in the CME or LNG at highways and plus consumer retailing for convenience stores. Probably in retail, we are doing this.

Jenny CL — DGM Pricing and Insurance

During this year, we will be adding to 2550 [Phonetic] outlets. In Q2, we have already added 485. This is beyond the 130 outlets we have added in the Q1.

VRK Gupta — Director, Finance

So in terms of network expansion already, we are number 2. We are present at 19,600 levels. By ’22 or mid of ’23, the expected refinery, retail outlet expansion will be complete. With this, we are sure market share we can get a good amount of market share increase with this expansion and focusing on the highway and a little bit more on the retail side, rural side.

Mayank Maheshwari — Morgan Stanley — Analyst

Just one number, if you can help us with it. Like in terms of nonfuel revenues on the marketing side, how much is that as of today for you guys?

VRK Gupta — Director, Finance

Today, it will be very small nonfuel retailingl, our model only giving space for rental. That is the only model we are working on it. The contribution at EBITDA level or EBIT is very insignificant. Maybe 50 to 60 floor I can say in retail. Maybe some other SBUS maybe beyond LPG and other thing, maybe adding 50. All put together, it may not be much beyond 100 crores.

Mayank Maheshwari — Morgan Stanley — Analyst

Got it. Thank you sir.

Operator

The next question is from the line of Vidyadhar from ICICI Securities. Please go ahead.

Vidyadhar Ginde — ICICI Securities — Analyst

My first question is the amalgamation of BORL with BPCL, which you have approved and which you said could take 6 to 9 months. Is it in any way likely to interfere with the privatization process? And will privatization happen only after amalgamation or that’s not the case?

VRK Gupta — Director, Finance

At least we are not foreseeing any problem in terms of the privatization. Business as usual. Definitely it helps increase in the value of the organization. So I don’t think any issue it creates.

Vidyadhar Ginde — ICICI Securities — Analyst

Not that way, I am saying in terms of time line [Speech Overlap]

VRK Gupta — Director, Finance

IT is a 100% subsidy company merger. In fact, if you see consolidated financial statements, alaredy we are merging these accounts. So I don’t think any difficulties or any roadblocks of privatization.

Vidyadhar Ginde — ICICI Securities — Analyst

You’re basically saying that this is not going to delay privatization?

VRK Gupta — Director, Finance

I don’t think because already we are publishing the consolidated accounts along with BORL.

Vidyadhar Ginde — ICICI Securities — Analyst

So just wanted to check that. Second question was on what are your — how are sales volume on petrol and diesel and crude throughput in October, some color that you could give?

VRK Gupta — Director, Finance

MS, still it is growing at a robust number.

Manoj Heda — Executive Director Corporate Finance

Actually, October, final sales figure are collated at the end of month, but seeing the trend still MS has shown — is showing growth. HSB sales, they are yet to pick up, and the same trend continues for October as of now.

Vidyadhar Ginde — ICICI Securities — Analyst

And what about throughput?

Manoj Heda — Executive Director Corporate Finance

Throughput, as I think Gupta sir has already covered that. But just to reiterate throughput, we are already operating in October above the nameplate capacity of 100 and we expect the trend to continue and only increase with the demand going up.

Operator

Thank you. The next question is from the line of Sumeet Rohra from Smartsun Capital. Please go ahead.

Sumeet Rohra — Smartsun Capital — Analyst

A very good morning to you. And excellent set of results from BPCL and season greetings to you and the entire team, sir. I have two questions broadly. One is on the business and the second is on the strategic sale. So firstly, I’ll touch upon the strategic sale point. So in that, I have a couple of things which I wanted to — if you can give us some clarity. Is that are there any pending queries from the bidders which still need to be answered? That’s the first part.

And sir, secondly, on the point which you touched upon just now, and you said that hopefully you guys think that the process should be completed by Q4. So in that that’s what I — what — if you can help us understand it’s very different, right? Because when you say the process should be completed, would that also include the steady open offer to investors by Q4? Because the reason I ask that is because if that’s the case, then the process will actually have to start moving on to the next level of financial bid very shortly. So if you could just kind of help us understand that do you expect that if the process is to be completed by Q4 and the government is to include the INR75,000 crores, which we are provisioning from BPCL in the budget received. Then technically, we are very close to the financial state bid. So are there any queries which need to be answered and any interaction which still need to be done or it’s all done?

And sir, secondly, on the business point of view, if you can help understand how many outlets you were saying that you were going to add? And I’m sorry, I missed that part. And just one last thing. I mean, on the recovery, you said there are only 120 crore outstanding, right? That’s all. So we have no more receivables from government?

VRK Gupta — Director, Finance

Yes. First of all, for privatization, we don’t do any clear calendar of event with that because anyhow the transaction advisor and government of India only can comment. Otherwise, whatever in media report government of India made a statement. They want to complete by FY ’21, ’22. We are also hopeful they may complete before that day. Otherwise, from our side, our role is very limited, only providing the data and replying the query.

And second thing, discussions with the management not yet happened in Q2, and we don’t know what is the schedule of that and another thing. So beyond that, we cannot comment anything in the process.

And second thing, the business side, the retail outlet expansion, we have — current quarter we have commissioned around 485 Q2 and around 130 outlets we have commissioned in Q1. Maybe another 400 or 500 outlets we are going to commission in this year. And maybe by mid of next year, we may code to the network expansion. Then other initiative we will focus to improve our market share.

Sumeet Rohra — Smartsun Capital — Analyst

Okay. And sir, I mean, on the LPG part?

VRK Gupta — Director, Finance

LPG, what are your question, please?

Sumeet Rohra — Smartsun Capital — Analyst

No, no. Sorry, if I heard correctly you said that the total outstanding is only 120 crores, is all the outstanding from government?

VRK Gupta — Director, Finance

Yes, from government of India the total requirements are only 120 crores because whatever small subsidiary, after submission of the bill, they are continuously making payment. Otherwise, there is no major options. We are at 120 crores.

Sumeet Rohra — Smartsun Capital — Analyst

Okay. Thank you so much. Wish you all the best.

Operator

Thank you. The next question is from the line of Sagar from Emkay Global. Please go ahead.

Sabri Hazarika — Emkay Global — Analyst

This is Sabri Hazarika of Emkay Global. So I have three questions. Firstly — first one relates to LPG. So you mentioned that subsidized — I mean LPG do not have any subsidy right now. But considering the sharp hike in global LPG prices over the last few months, are youj making positive margins on nonsubsidized LPG or are you observing some?

VRK Gupta — Director, Finance

On margin, we cannot comment anything on the margin. But subsidies, yes, in some particular periods of time, there is a small subsidy in certain markets. But overall, the subsidy comparably very small one government of India is reimbursing on the subsidy. Our margins we cannot comment anything on.

Sabri Hazarika — Emkay Global — Analyst

Second question relates to your capex. So you said around INR10,000 crores is the capex for FY ’22. So FY ’23, what would be the guidance?

VRK Gupta — Director, Finance

As of date, we have certain projects in our though, the feasibility studies are going on. But we have not yet concluded a stage what is the amount we have to commit for next year. Excluding those new projects, the normal capacity we are expecting around 10,400 crores for next year ’22, 23. In case if anything, we conclude on the new projects, definitely these numbers will go up. But otherwise, as of date, the next year normal capacity we are expecting around 10,000 crore.

Sabri Hazarika — Emkay Global — Analyst

You should consider, strictly, project wise, I guess you have included the polyol project in this or not?

VRK Gupta — Director, Finance

Not for next year, not a big amount, but still, we are re-working on the total numbers for polyol. So once we conclude, then we will have vision in the number.

Sabri Hazarika — Emkay Global — Analyst

Okay. And retail outlet addition annually will be on 1,500 to 2,000, that’s right?

VRK Gupta — Director, Finance

Next year, it may not be that much.

Sabri Hazarika — Emkay Global — Analyst

This year, it will be 1,500.

VRK Gupta — Director, Finance

Maybe 1,000, or 1,200. We have a target of around 1,500, but we may close around 1,000 to 1,300.

Sabri Hazarika — Emkay Global — Analyst

And sir, last question is related to again a clarification on PBPC. You’ve mentioned that $1 GRN acquisition will happen to Cochin refinery. So that is because of producing propylene versus LPG. That’s right?

VRK Gupta — Director, Finance

Propylene versus LPG plus. Propylene and petrochemical price differentials. So both put together. The final value addition at GRM level, one is propylene to LPG that conversion whatever differentials, there is an advantage. From propylene to conversion to the petrochemical, whatever value addition. Both components put together, definitely it should add $1 GRM.

Sabri Hazarika — Emkay Global — Analyst

So you are saying that Petchem segment, whatever profit comes, for example, the difference between say, butile acrylite and propylene, that difference is also captured in this one, right?

VRK Gupta — Director, Finance

Assuming not at the current peak prices, on a long-term average.

Jenny CL — DGM Pricing and Insurance

This, we are talking only at the refinery level. Further, they will be marketing…

VRK Gupta — Director, Finance

Yes. There will be some small marketing margin.

Sabri Hazarika — Emkay Global — Analyst

And marketing margin will be on top of that. That will be based on the Indian demand conditions?

VRK Gupta — Director, Finance

Right.

Sabri Hazarika — Emkay Global — Analyst

Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Manikantha Garre from Franklin Templeton. Please go ahead.

Manikantha Garre — Franklin Templeton — Analyst

Just want to check on your revenue statement, you are saying that by middle of next year, [Indecipherable] should help you maintain market share. Does that mean that after that your RO, retail outlet addition may decelerate, is that what you’re alluding to?

VRK Gupta — Director, Finance

Not this speed. Like for example, last couple of years we have made additions of around 2,000, 3,500 retail outlets for over a period of 2 years. So the expansion may not be that magnitude, that’s what I’m trying to say. Maybe wherever important markets are there, those important market may add retail outlets, but not like every year addition of 1,000, 1,500 retail outlets.

Manikantha Garre — Franklin Templeton — Analyst

Okay. So what would be those markets that will be focused on [Indecipherable]?

VRK Gupta — Director, Finance

Right.

Manikantha Garre — Franklin Templeton — Analyst

And my second question is on the digital side. Anything you are mentioning that a lot of [Indecipherable] are going into digital as well. Earlier I think you have highlighted Lupin. So what are the key digital initiatives that you have implemented so far which are helping you where you have seen a lot of traction. Can you just list out?

VRK Gupta — Director, Finance

We are working on three, four themes. One is — one customer and chart bar and in retail UFill and a new loyalty program. Many initiatives we are working on it. Whatever we have implemented, two important things we have implemented. One is UFill we have implemented, it is working well. And second one is migration of conventional point of sale to Android based point of sale. These two initiatives already we have completed.

Manikantha Garre — Franklin Templeton — Analyst

So just on this point only, how do we quantify the benefits of the history [Indecipherable] — Is it more on the cost or customer retention or the revenues, how do we quantify this? How do you think about the [Speech Overlap].

VRK Gupta — Director, Finance

In terms of quantification, the basic objective is the customer experience. Definitely, it will add on the volumes, but we are not sure what extent actually it has helped because the initiatives have started just now. Maybe after a couple of quarters, we can work out what exactly there is on account of the digital initiatives in terms of the volumes. But definitely, there is a different customer experience.

Manikantha Garre — Franklin Templeton — Analyst

Sure, sir, just one last question on this. And again, I think you have started door delivery of this, I think petrol diesel from startup. How is that — how is the traction there? And who are the customers who are placing this predominantly?

VRK Gupta — Director, Finance

We have two initiatives here. One is door delivery through Broger. And second one, we have recently launched selling of [Indecipherable]. It’s a 20 liter jerrycan so that from retail outlet through a sealed jerrycan the product can reach to the customer for [Indecipherable] whoever is the consumers mainly for pumpsets and DG set. If they want any detail, they need not come to the retail outlet. Straight away the 20 liter packed jerrycan can reach to them.

And in a big consumer mainly for any housing societies and any industries if they want large-scale digital consumption, they can take this product through Broger. Today, presently, we are having a retail fuel cut of around 537 numbers we are operating Broger.

Manikantha Garre — Franklin Templeton — Analyst

So on this you earn more marketing margin?

VRK Gupta — Director, Finance

The margins are everything same only, because this is the RFP. Whatever margin is loaded with the customer, from there only the sharing will happen otherwise he marketing margin will be more or less same way. It’s only — we are delivering the product at customer point instead of retail outlet.

Manikantha Garre — Franklin Templeton — Analyst

Then that is an additional cost for you?

VRK Gupta — Director, Finance

Yes, maybe dealer margin is also there, there maybe some sharing from the dealer margin.

Manoj Heda — Executive Director Corporate Finance

So there is this delivery of the still scheme under which we recovered this call.

Manikantha Garre — Franklin Templeton — Analyst

Recover from dealers?

Manoj Heda — Executive Director Corporate Finance

Yes.

Manikantha Garre — Franklin Templeton — Analyst

Okay. Thank you so much and happy Diwali to all of you.

Operator

Thank you. The next question is from the line of Iqbal Khan from Edelweiss. Please go ahead.

Iqbal Khan — Edelweiss — Analyst

Hi. Thank you. My question is answered.

Operator

The next question is from the line of Amit Rustagi from UBS Securities. Please go ahead.

Amit Rustagi — UBS Securities — Analyst

Yes, could you clarify that the open offer required for IGL require some clarifications from SEBI, so what did we hear from them?

VRK Gupta — Director, Finance

As already has clarified, there is no development happened during the quarter. So we — once again, we are saying that have no intention to sell our stake. We want to continue stakes in these two companies because these are the strategic investments. But otherwise, there is no development happening in that open offer side during this quarter.

Amit Rustagi — UBS Securities — Analyst

This means that the open offer is applicable for — and IGL. Means SEBI has not given any exemption?

VRK Gupta — Director, Finance

As of date, As per SEBI regulation [Indecipherable].

Amit Rustagi — UBS Securities — Analyst

Okay. Got it. Thanks a lot. And wish you all the best and Happy Diwali to all the participants. Thank you.

Operator

The next question is from the line of S. Ramesh from Nirmal Bang. Please go ahead.

S. Ramesh — Nirmal Bang — Analyst

So I just wanted your thoughts on the future prospects of [Indecipherable] based on the numbers you have shared for the second quarter. Assuming the sort of margins, can we kind of profits being sustained even that also repaid some loans? How do we read the future performance of [Indecipherable] from here?

Manoj Heda — Executive Director Corporate Finance

So if you look at the refining performance, I think that BORL has also done quite well in terms of physical performance as well as the financial performance. And since the loan has been repaid. So going forward, we see a very good refining margin coming from BORL.

S. Ramesh — Nirmal Bang — Analyst

Okay. And the second part is on the CGD business. With the rollout of the new GAs that can you give us, how many GAs you are going to roll out in the, say, next two to 3 years in your standalone balance sheet? And what is the kind of impact it will have on your P&L in terms of some rough indication or in terms of volumes? That would be great.

Jenny CL — DGM Pricing and Insurance

BPCL, along with BRL, we have now 17 GAs of which we will be spending over 8,000 crores in the next coming 5 years. Indeed, 17 GAs already supply of CNG and PNG has started in around 11. Price is just under construction balance. In all the 17 GAs, construction is also parallaly going on. On what would be the expected returns, we won’t be able to share a number as of now.

Manoj Heda — Executive Director Corporate Finance

Just to add, however, the IRR is pretty good, and we have also technically commissioned some 64 number of retail outlets in these deals. And just to compare out of that 8,000 crores, capex which ma’am told some 1200 crores capex we have already done.

S. Ramesh — Nirmal Bang — Analyst

So just to get a sense in terms of when we can see the commercial results is there any time line you can give FY ’23, ’24?

VRK Gupta — Director, Finance

If we see all the GAs, these are long projects, maybe some projects, we may have to complete within a period of 5 years, some a period of 8 years. But in a phased manner, some benefits will accrue even starting from next year also some benefits may accrue. But what exactly the benefit, we have to work out and see, maybe next time we can explain.

S. Ramesh — Nirmal Bang — Analyst

Thank you very much. And wish you all the best.

Operator

Thank you. The next question is from the line of Vinit Joshi from Goldman Sachs. Please go ahead.

Vinit Joshi — Goldman Sachs — Analyst

Thanks a lot for your time. My first question is on the ethanol blending, can you please help us understand how does this impact earnings? You are already at 10% and the target is to go to 20%. So would it mean additional cost or additional margins? How should we think about it?

Manoj Heda — Executive Director Corporate Finance

So actually ethanol blending, currently, the target of 10%. So we are on the way to achieve that target. With respect to the enhanced target of 20%, which we have to comply within the future. So actually there are various issues or unresolved issues, which are yet to be figured out because, first of all, the existing vehicles in market, they can only taken ethanol blended MS only up to 10% ethanol blended MS.

So the automobile manufacturers have to comply with those new specifications. And other than that, there are also issues like at a retail outlet, there would certainly be old engines only because in a country like India, where a life cycle of a car is at least some 5 to 6 years. So the old vehicles also would be there, so whether any retro fitment would be there in the vehicle. So there are many unresolved issues which are yet to be figured out and which shall be dealt with jointly with the automobile manufacturers, government of India and on the OMCs as well as refineries. So to chart out a way right now is difficult, but all of us are on the job to achieve the target of 20%.

Vinit Joshi — Goldman Sachs — Analyst

I wanted to understand, is it margin accretive or margin relative? Because we have gone from like 2%, 3% to 10% commendably in the last 3,4 years, right? So does it increase your margins or does it reduce your margins as we [Speech Overlap]?

VRK Gupta — Director, Finance

So there is no effect on the margins as such due to ethanol blending.

Jenny CL — DGM Pricing and Insurance

It’s only a timing difference.

Vinit Joshi — Goldman Sachs — Analyst

Okay. All right. And can you also help us understand the business model of EV charging. When you are, let’s say, adding a EV charger to your station, is the capex done by a third-party where you’re tying up with some electricity provider and you’re making a fixed margin on each charge, which means it’s an additional revenue opportunity for all the outlets? Or does it mean that you also have to incur capex to set up a station with EV chargers. So if you can just help us understand, I’m sure it will be evolving. But I mean, how should we think about in future to model the earnings from this business?

VRK Gupta — Director, Finance

Rightly, you said still it is evolving. But however, as a rough estimation in a particular retail outlet, it depends on the charging points we want to make it available. The capex requirement may be INR3 lakh to INR10 lakh range. That is a range for putting the capex management. But as of date, wherever we have already around 40, 50 charging stations we have started, the capex has been invested by the BPCL only. And we are looking at various options, maybe with tie-up with some of the service providers or — we are not sure how do we go about it, either we make our own investment because it doesn’t require any big amount of capex investments, even per retail outlet an hour at INR5 lakh, INR6 lakh if we have to invest, even 1,000 retail outlets, if you want to make it, I don’t think it will be much beyond 50 crore capex requirement.

But revenue models, we are not very clear what numbers we can generate. What number of vehicles will come to the retail outlet and charging. What volumes — that we are not yet clear at this point of time. But otherwise, yes, for giving a facility at our retail outlets, we are clear at around 1,000 retail outlets we want to make at the charging station.

Vinit Joshi — Goldman Sachs — Analyst

And this INR3 lakh to INR10 lakh that you mentioned, it seems like small. I mean how many charging points are you able to install? And what sort of charging points are you installing? Are you — are these like fast chargers or super fast chargers? What is the charging time, if you can share anything, any experience that you’ve had?

VRK Gupta — Director, Finance

No, not yet clear because still it is evolving. Some of the manufacturers are — actually, if you ask me the charging points are not standardized there, right? So whatever charging point, if I create — maybe — may not be compatible for some of the vehicles. It may be compatible only for some of the vehicles. So this technology is still evolving as long as there is no standardization happens in the charging. We are not sure at what speed this charging can happen and which vehicles it is compatible.

Vinit Joshi — Goldman Sachs — Analyst

Okay. And sir, my last question, I think you’ve been hearing that there could be some hydrogen purchase obligation at some point in India where refineries and fertilizer sector will have to use green hydrogen. So how are you preparing for that? If you can help us understand? Will it be like an additional cost to you in terms of meeting that regulation or do you see this as a business opportunity for you in the long run?

VRK Gupta — Director, Finance

We don’t have information readily. But however, we’ll come back to you on that.

Jenny CL — DGM Pricing and Insurance

We will answer that offline. We’ll get the ticker details and come back to you.

Vinit Joshi — Goldman Sachs — Analyst

Thanks a lot ma’am. Happy Diwali to all of you. Thank you.

Operator

Thank you. The next question is from the line of Vidyadhar from ICICI Securities. Please go ahead.

Vidyadhar Ginde — ICICI Securities — Analyst

Thank you. So my question was on BORL. Just wanted to understand that will the amalgamation — because of the amalgamation, are there going to be some tax benefits, some indirect taxes with BORL? Was it a network of separate company and in which it won’t have to pay now whereby these entity benefits from that. Is there anything like that can be quantified?

VRK Gupta — Director, Finance

Actually, we are foreseeing a couple of benefits after this merger. One is definitely in terms of economies of scale in terms of crude procurement, so that crude procurement is happening at BPCL level as well as BORL level. That definitely we can find some synergy so that one level of crude procurement happens. And second the hedging mechanism what is happening at BPCL may not be at the same levels in BORL. So all three refineries put together definitely there will be some good benefits. And inventory management

Operator

Inventory management also, it helps to reduce the inventory carrying cost. Just definitely, at the same time, after the merger, it becomes a BPCL refinery. The product movement will happen across India without having any tax implications.

Vidyadhar Ginde — ICICI Securities — Analyst

Are there any benefits improving profitability because of that? A number on that?

VRK Gupta — Director, Finance

Number, we have to work out because these numbers are totally different from the prices. Because if the number at crude is at $40 is different, if the number at crude is at $80 is different. But definitely, whatever tax implication will be in the range of 500, 600 crore or much higher also at the current prices.

Vidyadhar Ginde — ICICI Securities — Analyst

Is it the CST of 2%, which is the real benefit or what is it?

VRK Gupta — Director, Finance

Yes.

Vidyadhar Ginde — ICICI Securities — Analyst

Secondly, did BORL have any accumulated tax purpose losses which also you can benefit from?

VRK Gupta — Director, Finance

Benefit. I don’t know but there are definitely there are some accumulated MAT credits and other. Only MAT credit is there and [Indecipherable] depreciation is there. We have to work our tax point of view what exactly after the merger, how many — how much amount is available for passing on to BPCL and other thing that we need to work out as a process of this merger.

Vidyadhar Ginde — ICICI Securities — Analyst

And lastly, on the same BORL thing. So in terms of debt, has BORL entirely paid off the debt or once the merger happens, some debt will come to the merged entities and what could be that amount?

VRK Gupta — Director, Finance

As of date, existing [Indecipherable] loans have been settled with government of Madhya Pradesh. All other debt are still continuing with BORL. We are exploring how do we reduce the cost of fun for these rigs because today, it becomes a 100% subsidiary. And BORL, the credit rating is also improved, it is in line with the BPCL. So with this latest development, we are approaching the bankers to relook at the existing loan structure and infrastructure. Definitely, there will be a saving. Before the merger itself, there may be some savings.

Vidyadhar Ginde — ICICI Securities — Analyst

So what’s all the debt of BORL in end of September?

VRK Gupta — Director, Finance

So the debt figure is around 9,300 crores.

Vidyadhar Ginde — ICICI Securities — Analyst

Okay. Thank you.

Operator

Thank you. [Operator Instructions] Next question is from the line of Saurabh Handa from Citigroup. Please go ahead.

Saurabh Handa — Citigroup — Analyst

Thank you for the opportunity. I have two questions. The first one, once again, was on LPG. Now the international price, the Aramco FOB price has gone up from around $660 to $800 per tonne. So that would require you to raise the retail price by almost INR140 per cylinder. So if that were to not happen next week because we usually do it in the first week of the month, can we assume that we could see some under-recoveries subsidies coming back? And especially because this $800 number could even go higher given the winter tightness that we are seeing right now?

VRK Gupta — Director, Finance

No, we cannot comment anything on the expected price increases. We don’t have any comments on this.

Saurabh Handa — Citigroup — Analyst

No, this is not an expected increase. This $800 per tonne is the published number. So we do know that the Aramco FOB price is $800 for November.

VRK Gupta — Director, Finance

I agree. We have to see only after the price increase. After next couple of days, what is the price increase will happen? What is the government subsidy we will keep. Those things will comment only after the event happens.

Saurabh Handa — Citigroup — Analyst

Okay, sir, fine. Second question just to clarify on the PDPP you said. So the refining segment will basically capture both the uplift in margins from producing propylene instead of LPG as well as the petrochemical delta. So the product price minus the propylene price. Is that correct?

VRK Gupta — Director, Finance

Yes.

Saurabh Handa — Citigroup — Analyst

So it’s only the marketing margin on the sales of the products, which, if any, you will capture in your marketing segment?

VRK Gupta — Director, Finance

Yes, that will be additional.

Saurabh Handa — Citigroup — Analyst

Okay. So there is no new like petrochemical division, which you will sort of create new segments? So it will just be a split between the existing refining?

VRK Gupta — Director, Finance

As of date, we have one separate SBU who are leading in the direct product, same business unities we were dealing with petrochemicals.

Saurabh Handa — Citigroup — Analyst

Okay. Fair enough. So that’s it from me. Thank you so much.

Operator

Thank you. The next question is from the line of Sabri Hazarika from Emkay Global. Please go ahead.

Sabri Hazarika — Emkay Global — Analyst

So I have two questions. The first one is relating to ethanol blending only. So is the private sector also into ethanol blending right now, private sector OMCs also doing it right now?

VRK Gupta — Director, Finance

No OMCs are doing. Private sector, they are not doing.

Sabri Hazarika — Emkay Global — Analyst

So they don’t have any compulsion, right?

VRK Gupta — Director, Finance

Right.

Jenny CL — DGM Pricing and Insurance

Correct.

Sabri Hazarika — Emkay Global — Analyst

And secondly, any idea on the normalized GRM for the quarter?

Jenny CL — DGM Pricing and Insurance

We won’t be able to give any numbers to the GRM for this.

VRK Gupta — Director, Finance

Yes, we are stopped working on any of the other ways of working on the GRP. Whatever declared VRM, that only we have calculated.

Sabri Hazarika — Emkay Global — Analyst

Okay. Thank you so much and with you very Happy Diwali.

Operator

The next question is from the line of S. Ramesh from Nirmal Bang.

S. Ramesh — Nirmal Bang — Analyst

Yes. So I just wanted your thoughts on this compressed biogas, bioCNG projects, which all the OECs are trying to encourage third parties to set up. So if you’re buying that CNG at INR46, how does the economics work? And how do you monetize that business in terms of at what price we’ll sell? And when do you see that actually reflecting in your business?

VRK Gupta — Director, Finance

So that monetization part and all that is yet to start. It is still in the nascent stage where we have floated expression of interest around 39 number of expression of interest we have floated so far. And some — we are envisaging that expected CVG that production against the alloys would be around some 1,000 tonnes per day. So per se, we are still in the nascent stage of it. Once there is finality to the number of ROs and where we should be placing, it shall be going forward. So as of now, we won’t be able to give any further details on this.

S. Ramesh — Nirmal Bang — Analyst

Yes. But the question is, since there is a guaranteed price for lifting the bioCNG from the manufacturer, the INR46 a kg, how does it become competitive with the other CNG which you also are retailing? And how do you generate some margins from that? That is the — so what is the thinking on that right now, assuming that the INR46 is [Indecipherable]?

VRK Gupta — Director, Finance

That’s what I’m saying that the further economics of it, we shall not be able to share it at this point of state.

Manoj Heda — Executive Director Corporate Finance

Still we need to work out. One is the procurement price. Second one is, how do we load in the pricing of petroleum product. And anyhow, this production may not come in this year. Even if we issue the LOA and sign the agreement by Q4, there is a time lap of committing unit by another one year, maybe ’23 ’24 or end of ’22, ’23 we can see the production coming from these units. At that point of time, we can have a better idea.

S. Ramesh — Nirmal Bang — Analyst

Okay. Thank you.

Operator

Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing comments.

VRK Gupta — Director, Finance

So I would like to thank Anti Stockbroking for organizing this call. And we look forward to you all to meet in the next quarter results. Thank you. Vetsa Gupta Yes. So I would like to thank Antique Stock Broking for organizing this call. And we look forward to you all to meet in the next quarter results. Thank you.

Jenny CL — DGM Pricing and Insurance

Happy Diwali to all.

Operator

Thank you very much. I now hand the conference over to Mr. Varatharajan for his closing comments.

Varatharajan Sivasankaran — Antique Stock Broking Limited — Analyst

Yes. Thanks, everyone, for taking out time to joining the call on a Saturday. Have a nice day, and Happy Diwali. Thanks everyone.

Operator

[Operator Closing Remarks]