Hindustan Petroleum Corporation Ltd:Annual Report 2023-24 Analysis

Hindustan Petroleum Corporation Ltd. (HPCL): A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Hindustan Petroleum Corporation Limited (HPCL) was formed in 1974 through the merger of erstwhile Esso Standard Refining Company of India Limited and Lube India Limited, nationalized by the Government of India. Later, Caltex Oil Refining (India) Limited was also merged with HPCL in 1976.

Headquarters Location and Global Presence #

HPCL is headquartered in Mumbai, India. While its primary operations are domestic, HPCL has expanded its presence through strategic alliances and investments in international markets, primarily for sourcing crude oil and exploring potential downstream opportunities.

Company Vision and Mission #

• Vision: “To be a fully integrated company with leadership position in refining and marketing of petroleum products.”
• Mission: “To fulfill energy needs of India by sustaining global competitiveness, striving for excellence in customer service and quality.”

Key Milestones in Their Growth Journey #

• 1974: Formation of HPCL through nationalization.
• 1979: Commissioning of the Visakh Refinery.
• 1984: Commissioning of the Mumbai Refinery.
• 1998: Launch of HPCL’s retail brand “Club HP”.
• 2007: HPCL acquired Bhatinda Refinery (Guru Gobind Singh Refinery) which is now HPCL Mittal Energy Limited (HMEL).
• 2018: Acquisition of 51.11% stake by ONGC.
• 2024: HPCL signs MoU with Tata Technologies to implement digital transformation.

Stock Exchange Listing Details and Market Capitalization #

HPCL is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Market capitalization fluctuates with market conditions.

Recent Financial Performance Highlights #

Financial performance figures for HPCL including revenue, net profit, and key financial ratios (e.g., debt-to-equity ratio) are readily available in their annual reports and investor presentations.

Management Team and Leadership Structure #

The company is led by a Chairman and Managing Director (CMD) who oversees the Board of Directors. The leadership team consists of functional directors responsible for Refining, Marketing, Finance, Human Resources, and other key areas.

Notable Awards or Recognitions #

HPCL has received various awards and recognitions for its performance in areas such as:

• Energy Efficiency
• Corporate Social Responsibility (CSR)
• Human Resource Management
• Safety

Their Products #

Complete Product Portfolio with Categories #

HPCL’s product portfolio includes:

• Fuels: Petrol (Gasoline), Diesel, Aviation Turbine Fuel (ATF), Kerosene, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG)
• Lubricants: Automotive Lubricants, Industrial Lubricants, Greases, Specialties
• Bitumen: Various grades for road construction and other applications
• Specialties: Solvents, Transformer Oil, White Oil

Flagship or Signature Product Lines #

• HPCL Petrol: Branded petrol with performance-enhancing additives.
• HP Lubricants: Well-established brand with a wide range of automotive and industrial lubricants.

Manufacturing Facilities and Production Capacity #

HPCL operates several refineries:

• Mumbai Refinery
• Visakh Refinery
• HPCL Mittal Energy Limited (HMEL) (associate)
• Greenfield refinery in Rajasthan (Under development)

Combined refining capacity can be obtained from HPCL’s annual reports and official statements.

Quality Certifications and Standards #

HPCL’s products and operations adhere to stringent quality standards and hold certifications such as:

• ISO 9001 (Quality Management)
• ISO 14001 (Environmental Management)
• OHSAS 18001/ISO 45001 (Occupational Health and Safety)

Recent Product Launches or R&D Initiatives #

HPCL continues to invest in research and development to improve its product quality, develop new products, and explore alternative fuels. Recent launches include:

• Upgraded lubricant formulations
• Premium fuel variants
• Biofuel initiatives

Primary Customers #

Target Industries and Sectors #

• Automotive
• Aviation
• Industrial
• Agriculture
• Construction
• Transportation
• Residential

Geographic Markets (Domestic vs. International) #

HPCL’s primary market is India. Limited international presence through sourcing and strategic partnerships.

Major Client Segments #

• Individual consumers (retail fuel and lubricants)
• Commercial vehicle operators (transportation companies)
• Industrial units (manufacturing plants, power plants)
• Agricultural sector (fuel for irrigation pumps and tractors)
• Government agencies (defense, transportation)

Distribution Network and Sales Channels #

HPCL has a vast distribution network comprising:

• Retail outlets (petrol pumps)
• LPG distributorships
• Direct sales to industrial clients
• Aviation fuel stations at airports
• Depots and terminals for storage and distribution

Major Competitors #

Direct Competitors in India and Globally #

India:

• Indian Oil Corporation Limited (IOCL)
• Bharat Petroleum Corporation Limited (BPCL)
• Reliance Industries Limited (RIL)
• Nayara Energy (formerly Essar Oil)

Globally:

• Major international oil and gas companies

Competitive Advantages and Disadvantages #

Advantages:

• Established brand reputation
• Extensive distribution network
• Integrated refining and marketing operations
• Strong presence in the domestic market
• Government backing (ONGC majority ownership)

Disadvantages:

• Vulnerable to crude oil price fluctuations
• Regulatory environment
• Competition from private players
• Dependence on imports for crude oil

How They Differentiate From Competitors #

HPCL differentiates itself through:

• Focus on customer service and quality
• Strategic marketing initiatives
• Strong brand recognition
• Technological innovations in refining and marketing

Future Outlook #

Expansion Plans or Growth Strategy #

HPCL’s growth strategy includes:

• Expanding refining capacity
• Increasing retail network presence
• Investing in renewable energy projects
• Exploring opportunities in petrochemicals
• Improving operational efficiency
• Digital Transformation

Upcoming Products or Innovations #

• Focus on alternative fuels (biofuels, hydrogen)
• Development of advanced lubricants
• Digitalization of retail operations
• Expansion of petrochemical business

Sustainability Initiatives or ESG Commitments #

HPCL is committed to sustainability and has initiatives focused on:

• Reducing carbon footprint
• Promoting energy efficiency
• Investing in renewable energy sources
• Water conservation
• Community development

Industry Trends Affecting Their Business #

• Rising demand for energy in India
• Shift towards cleaner fuels and renewable energy
• Volatility in crude oil prices
• Increasing environmental regulations
• Technological advancements in refining and distribution
• Geopolitical instability

HPCL Performance Overview: 2023-24 #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue from Operations: Decreased from ₹4,66,192.35 crore in 2022-23 to ₹4,61,637.51 crore in 2023-24, after increasing from ₹3,73,896.74 crore in 2021-22.
• EBITDA: Increased to ₹27,221.16 crore in 2023-24, a recovery from a negative ₹5,453.09 crore in 2022-23, after being at ₹13,145.54 crore in 2021-22.
• Standalone Profit After Tax (PAT): Increased to ₹14,693.83 crore in 2023-24 from a net loss of ₹8,974.03 crore in 2022-23.
• Earnings Per Share (EPS): Increased to ₹103.58 in 2023-24 from a negative ₹63.26 in 2022-23.
• Debt Equity Ratio: Improved from 2.33:1 in 2022-23 to 1.47:1 in 2023-24.
• Asset Turnover Ratio: Increased to 2.72 in 2023-24 from 2.65 in 2022-23 and from 2.15 in 2021-22.
• Return on Capital Employed (RoCE): Improved from negative 4.9% in 2022-23 to 21.3% in 2023-24.
• Market Capitalization: Rose from 33,617 cr as on March 2023 to 67,493 as on March 2024.
• Total Return to Shareholders: 30.8% between March 2014 and March 2024.

Business Segment Performance #

• Refining:
  • Refinery throughput increased by 17%, reaching 22.33 MMT in 2023-24.
  • Mumbai and Visakh Refineries achieved highest-ever combined refining throughput.
  • Visakh Refinery Modernisation Project (VRMP) completed.
  • Average capacity utilisation was 103.3%.
  • Refineries processed seven new grades of crude oil.
• Marketing:
  • Retail: Achieved sales volume of 28.8 MMT in 2023-24.
    • Commissioned 836 new retail outlets, totaling 22,022.
    • Expanded CNG and EV charging facilities.
  • LPG: Achieved sales of 8.6 MMT in 2023-24, growing 5.5%.
    • Added 66 new LPG distributorships, totaling 6,349.
  • Lubricants: Recorded sales of 652 TMT in 2023-24, exporting to 13 countries.
  • Direct Sales (I&C): Recorded sales volume of 5.4 MMT.
  • Aviation: Achieved sales of 878 TMT, up 26.8%.
  • Natural Gas: Total industrial sales of 375 TMT and CNG sales of 67.6 TMT.
  • Biofuel and Renewables: Achieved 12% ethanol blending.
  • Supplies, Operations & Distribution: Achieved throughput of 59.38 MMT.
  • Pipelines: Achieved pipeline throughput of 25.82 MMT.

Major Strategic Initiatives and Their Progress #

• Visakh Refinery Modernisation Project (VRMP): Completed and dedicated in March 2024.
• HPCL Rajasthan Refinery Limited (HRRL): Integrated refinery cum petrochemical complex under construction.
• Expansion of City Gas Distribution (CGD) Networks: 682 CNG stations and approximately 6.9 lakh PNG connections commissioned as of March 31, 2024.
• Green Energy Initiatives: Commissioned a 5 MW solar power project in Jhansi, and the 6 MW solar project at Panipat is mechanically completed.
• Compressed Biogas (CBG) Plants: The first CBG plant in Budaun (Uttar Pradesh) commenced commercial sales. A second CBG plant was commissioned at Pathmeda (Rajasthan).
• 2G Ethanol Plant: The plant in Bathinda, Punjab, is nearing completion.

Risk Landscape Changes #

• Macroeconomic Risks: Exposure to global crude oil price volatility, supply chain disruptions, and geopolitical situations.
• Financial Risks: Risks related to foreign exchange, project cost overruns, and securing funds at favorable rates.
• Asset Integrity, Health, and Safety Risks: Risks related to fire, explosions, accidents, and occupational health and safety incidents.
• Information Technology and Cybersecurity Risks: Threats of cyber-attacks, data leakage, and system unavailability.
• Transition and Climate Change Risks: Increasing customer adoption of clean energy and reduction in demand for conventional hydrocarbon fuels and risks associated with greenhouse gas (GHG) emissions.
• ESG Materiality Assessment: HPCL has conducted assessment for 2023-24 covering the fiscal year, by comparing exisiting ESG materiality matrix with global ESG standards and framework.

ESG Initiatives and Metrics #

• Environmental:
  • Net Zero Target: Scope 1 and 2 emissions by 2040.
  • Renewable Energy: Total renewable power capacity reached 208 MW (solar and wind).
  • CNG and EV Charging: 1,690 retail outlets with CNG, 3,603 with EV charging.
  • Ethanol Blending: Achieved 12% ethanol blending, blending 156 Crore litres of ethanol in MS.
  • Green Hydrogen Facility: 370 TPA pilot plant at Visakh Refinery is in an advanced stage of completion.
  • Energy Conservation: Implemented 22 energy conservation schemes in refineries.
  • Water Management: Recycled 12,04,465 KL of water at refineries; harvested ~1,200 TKL of rainwater.
  • Biodiversity: 1,793 acres of area under green belt.
• Social:
  • CSR Expenditure: H 111.9 crore, impacting over 32.3 lakh beneficiaries.
  • Employee Training: 59,440 man-days of training.
  • LPG Reach: Added 12,724 HP SAKHIs to maximize rural LPG access.
• Governance:
  • Corporate Governance: Policies and procedures for transparency, ethics, and accountability.
  • ESG Governance: CSR and Sustainability Development Committee, headed by an Independent Director, oversees sustainability strategy.

Management Outlook #

• The global economic outlook for 2024 is moderate, with geopolitical risks remaining a major concern.
• The Indian economy is expected to grow by 7.2% in 2024-25.
• India’s energy demand is increasing rapidly, with oil accounting for nearly one-third of the country’s energy needs.
• India aims to achieve net-zero emissions by 2070.
• HPCL is making investments in green energy, biofuels, natural gas, and alternate fuels.
• The corporation will continue to integrate technology and foster innovation to streamline operations and meet customer expectations.
• India’s energy transition allows the co-existance of both traditional and greener energy.

Comparative Analysis with Industry Averages #

• Throughput in supply & distribution of petroleum products at 59.4 MMT.
• Retail Network: HPCL is the nation’s second-largest retail network owner.
• Pipeline Network: HPCL has the 2nd largest cross-country pipeline network.
• LPG: Supplies clean cooking fuel to one out of every four families in India.
• Market Sales: Market sales peaked at 46.8 MMT during the year, with a growth rate of 7.8% over historical levels.
• Solomon Global Benchmarking: HPCL’s pipeline performance on the Solomon Global Benchmarking of Manageable Non-Volume Expenditure (MNVE) ranked in the top 6th percentile worldwide.

Detailed Analysis #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity #

( H / Crore)

Significant Changes in Major Line Items (>10% YoY) #

• Non-Current Assets: Increased by 10.71% (from 1,17,363.49Cr to 1,29,933.08 Cr), primarily due to increases within Capital Work-in-Progress, and Investments.
• Current Assets: Increased by 18.61% (from 44,557.59 Cr to 52,851.60 Cr) in line items, inventories, and other financial assets.
• Total Equity: Increased signifcantly by 45.43%(from 32,263.27Cr to 46,921.35Cr)
• Current Liabilities: Increased by 16% (from 74,447.46 to 86,342.65 Cr).

Working Capital Trends #

( H / Crore)

• Negative working capital, indicating reliance on short-term financing. Increased current assets and higher increase in current liabilities contributed to the change.

Asset Quality Metrics #

( H / Crore)

• The increase in provisions for doubtful debts & receivables, and Loan loss allowance may signal some stress in credit quality.

Debt Structure and Maturity Profile #

( H / Crore)

• The debt structure includes bonds, debentures, term loans from banks, and syndicated loans in foreign currency.
• Specific maturity schedules for each debt instrument are detailed in the provided notes.

Off-Balance Sheet Items #

( H / Crore)

• Contingent liabilities primarily consist of disputed demands and claims.
• Guarantees given to others increased slightly.

Segment-Wise Financial Analysis of HPCL (2023-24) #

Revenue Breakdown by Segment/Geography #

• Segment Revenue (2023-24):
  • Downstream Petroleum: ₹4,61,571.08 Crore
  • All Other Segments: ₹518.53 Crore
• Segment Revenue (2022-23):
  • Downstream Petroleum: ₹4,66,138.21 Crore
  • All Other Segments: ₹417.86 Crore
• Elimination between segment revenues totaled ₹ 120.47.
• Geographical Revenue (2023-24):
  • India: ₹4,53,017.30 Crore
  • Other Countries: ₹8,951.84 Crore
• Geographical Revenue (2022-23):
  • India: ₹4,61,479.43 Crore
  • Other Countries: ₹5,019.18 Crore
• Growth rates are reported in the Management Discussion & Analysis section.

Cost Structure Analysis (2023-24) #

• Cost of Materials Consumed: ₹1,26,816.04 Crore
• Purchases of Stock-in-Trade: ₹2,63,293.25 Crore
• Employee Benefits Expense: ₹3,422.39 Crore
• Finance Cost: ₹2,515.67 Crore
• Other Expense: ₹17,870.40 Crore
• Excise Duty: ₹28,112.63 Crore

Margin Analysis (Gross Refining Margin & Net Profit) #

• Refinery Gross Refining Margin (GRM) 2023-24:
  • Combined: US$9.08/bbl
  • Mumbai Refinery: US$10.35/bbl
  • Visakh Refinery: US$8.12/bbl
• Refinery Gross Refining Margin (GRM) 2022-23:
  • Combined: US$12.09/bbl
• Consolidated Net Profit After Tax (2023-24): ₹16,014.61 Crore
• Standalone Net Profit After Tax (2023-24): ₹14,693.83 Crore

EPS Analysis (Basic/Diluted) #

• 2023-24:
  • Basic and Diluted EPS: ₹103.58
• 2022-23:
  • Basic and Diluted EPS: (₹63.26)

Cash Management: Financial Analysis #

Cash Flow and Liquidity Analysis #

Operating Cash Flow (OCF) #

The Group’s OCF for 2023-24 was positive at ₹23,851.87 crore, a significant turnaround from a negative OCF of ₹(3,466.31) crore in 2022-23. The holding company’s standalone OCF for 2023-2024 is ₹23,920.04 crore.

Investing Cash Flow (ICF) #

The Group had a net cash outflow from investing activities of ₹(13,019.23) crore in 2023-24, compared to ₹(11,383.55) crore in 2022-23. The holding company’s standalone ICF for 2023-2024 is ₹(12,112.29) crore.

Financing Cash Flow (FCF) #

The Group experienced a net cash outflow from financing activities of ₹(15,810.28) crore in 2023-24, contrasting with an inflow of ₹16,025.17 crore in 2022-23.

Working Capital Management #

The standalone company has a current ratio of 0.61 in 2023-24 and 0.59 in 2022-2023, and the total current liabilities exceed current assets.

Capex Analysis #

HPCL Rajasthan Refinery Limited (HRRL), a joint venture, is undertaking a significant capital expenditure project (grassroots refinery and petrochemical complex). The standalone CAPEX of holding company in 2023-24 is ₹10,829.94 crore.

Dividend and Share Buyback Trends #

Dividend #

HPCL paid an interim dividend of ₹15/- per share in 2023-24, and the Board has recommended a final dividend of ₹16.50 per share (pre-bonus), resulting in a total dividend of ₹31.50 pre bonus. The holding company standalone dividend announced for 2023-24 is ₹16.5 / equity share (Pre-Bonus).

Share Buyback #

There was no share buyback in 2023-24, as the previous one was during 2020-21.

Debt Service Coverage #

The group has a debt service coverage ratio as -0.21 and 1.14 in 2022-23 and 2023-24.

Liquidity Position #

The Group’s cash and cash equivalents decreased to ₹279.85 crore as on March 31, 2024. The holding company standalone cash and cash equivalent as of march 31, 2024 is ₹159.07 crore.

HPCL Strategic and Management Analysis #

Long-Term Strategic Goals and Progress #

• HPCL’s T25 Strategy aims to create value and deliver growth responsibly by strengthening existing businesses, leveraging new growth engines (petrochemicals and natural gas), and seizing green and emerging opportunities.
• HPCL has a validated roadmap for achieving Net Zero in Scope 1 and 2 emissions by 2040.
• The Visakh Refinery Modernization Project (VRMP) was completed.
• HPCL Rajasthan Refinery Ltd (HRRL) is setting up India’s first integrated Grassroot Refinery cum Petrochemical complex.
• HPCL has incorporated a wholly-owned subsidiary, ‘HPCL Renewable & Green Energy Ltd. (HPRGE)’, to consolidate all green and emerging business opportunities.
• HPRGE commenced supplying renewable energy from a 5 MW solar power project.
• HPCL is expanding its presence in the natural gas sector, including the construction of a 5 MMTPA LNG Regasification Terminal and expansion of City Gas Distribution Networks.

Competitive Advantages and Market Positioning #

• HPCL has the nation’s second-largest retail network.
• ‘HP Gas’, HPCL’s LPG brand, supplies one out of every four families in India.
• HPCL’s pipeline performance ranked in the top 6th percentile worldwide.
• HPCL is ranked 119th in market capitalization as of March 31, 2024.
• HPCL’s refineries process new grades of crudes, contributing to highest-ever volumes of MS, HSD, LPG and LOBS.

Innovation Initiatives and R&D Effectiveness #

• HPCL’s Green R&D Centre collaborates with research institutions globally.
• HPCL received 51 patents during the year, with a total of 210 patents granted as of March 2024.
• HPCL is integrating technology across business using AI, IoT, Robotics, generative AI, and NLP.
• HPCL Green R&D Center provided advanced technological support to marketing and refineries, developing new product grades.
• Deployed AI/ML based hybrid model for real time process optimization.
• R&D efforts focused on green alternatives, refining technologies, bioprocess optimization, catalyst & additives, nano and battery technology, and new product development.

M&A Strategy and Execution #

• HPCL’s business operations extend through subsidiaries and joint venture companies in key areas.
• HPCL has 21 partnerships across key business areas.
• HPCL entered into a long-term Trademark Licensing Agreement with Chevron Corporation.

Management’s Track Record in Execution #

• HPCL achieved its highest-ever consolidated Profit After Tax (PAT) of J 16,015 Crore and a standalone PAT of J 14,694 Crore.
• The Visakh Refinery Modernization Project (VRMP) was dedicated to the nation.
• HPCL achieved the highest-ever combined refining throughput of 22.3 MMT.
• HPCL achieved highest-ever market sales of 46.8 MMT.
• HPCL successfully commissioned two 120 TMTPA LPG plants.
• A biomass-based Compressed Biogas (CBG) plant in Budaun, Uttar Pradesh, was completed and began commercial sales.
• The ERP system was modernized for greater business flexibility and efficiency.

Capital Allocation Strategy #

• HPCL invested J 14,342 Crore in refining and marketing infrastructure in 2023-24, including equity investments in JVs and subsidiaries.
• A sizeable investment is earmarked towards HPCL’s net-zero plans by 2040 across key levers.
• HPCL plans significant investments in renewables, biofuels, natural gas, and alternate fuels to realize its Net Zero ambition.
• HRRL achieved financial closure for the 9 MMTPA Integrated Grass Root Refinery cum Petrochemical Project.
• HPCL maintained an overall long term debt equity ratio of 1.06.

Organizational Changes and Their Impact #

• A dedicated ‘Energy Transition Cell’ was formed to implement the roadmap for achieving net zero emissions by 2040.
• A separate Strategic Business Unit (SBU) for Petrochemicals was established to ensure focused business strategies.
• HPCL incorporated a wholly-owned subsidiary named ‘HPCL Renewable & Green Energy Ltd. (HPRGE)’ to enhance its focus on sustainability.
• Succession planning and leadership development initiatives include identifying key talents, developing a leadership pipeline, and implementing mentorship programs.

HPCL’s ESG Framework and Sustainability Analysis #

Environmental Metrics and Targets #

• HPCL aims for Net Zero Scope 1 and 2 emissions by 2040.
• Scope 1 emissions were 4.72 million metric tonnes of CO2 equivalent, and Scope 2 emissions were 1.06 million metric tonnes of CO2 equivalent.
• Scope 1 and 2 emission intensity per MT of refinery throughput decreased by 2.79% compared to the previous year.
• Refinery energy savings totaled 132,136 SRFT in 2023-24, including sustained savings from previous schemes.
• Total energy consumed was 63.37 million GJ. Capital investments in energy conservation equipment at refineries amounted to ₹406.84 crore.
• Renewable energy generated: 0.77 million GJ.
• Freshwater withdrawal was 13,130 TKL, with ~1,200 TKL of rainwater harvested.
• The area under green belt within HPCL premises is 1,793 acres.
• Ethanol blending in Motor Spirit reached 12%.
• HPCL has set up green hydrogen facilities with 370 TPA at Visakh Refinery
• 132,136 SRFT energy saving in Refineries in 2023-24.

Social Responsibility Programs #

• CSR expenditure for 2023-24 was ₹111.9 crore.
• CSR projects under the ‘Health & Nutrition’ theme numbered over 80.
• CSR initiatives impacted over 32.3 lakh beneficiaries.
• 13 aspirational districts were impacted by CSR spending.
• Funding of 7 new startups.
• 41.2% of procurement was from small producers.
• HPCL is enhancing the welfare of children, women, and specific subsections of society.
• HP SAKHIs added to maximize reach of LPG is 12,724.

Governance Structure and Effectiveness #

• The Board’s composition includes Whole-Time Directors, Government Nominee Directors, and Independent Directors.
• Board independence includes Independent Directors and has 15.3% gender diversity.
• The Corporate Governance Report mentions a strong emphasis on transparency, ethics, and accountability.
• The Board includes committees focused on Audit, Risk Management, Nomination and Remuneration, Stakeholders Relationship, and CSR & Sustainability Development.
• 97.4% is Board attendance

Sustainability Investments and ROI #

• ₹14,342 crore was invested in refining and marketing infrastructure in 2023-24, including equity investments in JVs and Subsidiaries.
• HPCL has incorporated a wholly-owned subsidiary ‘HPCL Renewable & Green Energy Ltd.’
• Capital Investments in energy conservation is ₹406.84 crore.
• A substantial portion of CAPEX is earmarked for the green portfolio.

ESG Ratings and Peer Comparison #

• CDP rating increased by 2 notches.
• S&P Global ESG rating improved by 9 points.
• Materiality assessment was conducted in line with global ESG standards and frameworks (GRI, SASB, IPIECA) and peer benchmarking.

Regulatory Compliance and Future Preparations #

• Operations are conducted as per the National Guidelines for Responsible Business Conduct (NGRBC) principles.
• Policies are formulated in accordance with statutory laws, government guidelines, regulatory bodies, and industry best practices.
• A validated roadmap is in place for achieving Net Zero Scope 1 and 2 emissions by 2040, supported by an ‘Energy Transition Cell.’
• HPCL maintained 100% return to work rate for employees who availed parental leave.

Audit & Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The auditors issued a revised Independent Auditors’ Report, superseding the original report, following provisional comments from the Comptroller & Auditor General of India (CAG). Revisions were limited to clauses on inventory physical verification and filing of quarterly returns to banks.
• The revised report, along with branch auditors’ input, provides a true and fair view, with reliance on management-certified information for certain joint operations.
• There were no qualifications related to the Group’s internal controls with reference to the consolidated financial statements, barring notes of absence and non-operation of audit trail features in some subsidiaries, joint ventures and associates.
• The CAG had no further comments or supplementary remarks after the revisions to the statutory auditor’s report.

Key Accounting Policies and Changes #

• The financial statements adhere to Indian Accounting Standards (Ind AS) and the historical cost convention, with certain assets and liabilities measured at fair value.
• Specific assets’ useful lives were estimated as per management assessment, diverging from Schedule II of the Companies Act, 2013. For example, dispensing units have been depreciated at 10 years of useful life.
• Depreciation during the year has increased on account of a change in accounting estimates.
• Capitalization of borrowing costs is aligned with qualifying asset criteria.
• Revenue recognition follows Ind AS 115, with performance obligations and transaction price allocation.
• Inventory valuation methods vary by category (FIFO for crude oil, weighted average for raw materials, etc.).
• Impairment testing of non-financial assets at the CGU level.
• Lease accounting follows principles for both lessees and lessors.
• Provisions are recognized when a present obligation exists, outflow of resources is probable, and a reliable estimate can be made.

Internal Control Effectiveness #

• An adequate internal financial controls system with reference to financial statements is stated to be in place and operating effectively.
• Internal audits are conducted, and significant observations are reviewed by the Audit Committee.

Regulatory Compliance Status #

• The Company is generally compliant with the Companies Act, 2013, SEBI (LODR) 2015, and DPE Guidelines, except as noted below.
• Non-compliance with Regulation 17(1) of SEBI LODR, 2015, regarding the number of Independent Directors, was reported from May 1, 2023 to March 31,2024.The appointment of Directors rests with the Government of India.
• A slight delay in the advance intimation of the record date to the stock exchanges, as required by Regulation 60(2) of the SEBI LODR, 2015, was observed, and a waiver was requested from the Stock Exchanges.
• Secretarial Standards (SS-1 and SS-2) were complied with.
• All financial instruments, including those of subsidiaries, associates, and joint ventures, are in compliance.

Legal Proceedings and Potential Impact #

• Pending litigations’ impact has been disclosed in the financial statements.
• There are material uncertain indirect tax positions including matters under dispute.

Related Party Transactions #

• Material Related Party Transactions with HPCL-Mittal Energy Limited (HMEL), Hindustan Colas Private Limited (HINCOL), and ONGC Petro additions Limited (OPaL) for FY 2025-26 were approved, exceeding materiality thresholds.
• Transactions with related parties were conducted in the ordinary course of business and on an arm’s length basis.
• Disclosures of transactions with related parties are provided, as are the names and nature of relationships.

Subsequent Events #

• Bonus shares were issued in the ratio of 1:2 post the reporting period.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting quality is supported by the use of the historical cost and, when applicable, the fair value convention, and detailed review by the auditors, including those of subsidiaries, joint ventures and associates, when available.
• Regulatory risk is manifested by noted non-compliance with SEBI LODR regarding the number of independent directors and is related to the dependence on governmental appointments.
• The company uses a mix of financial instruments, including loans, bonds, and derivatives, to manage its financial risk, such as foreign currency risk, interest rate risk, and commodity price risk. The company’s disclosure regarding hedging activities and sensitivity analysis is a positive sign of risk management.
• Ongoing litigations and disputes, particularly regarding uncertain tax positions, expose the Group to financial risks.