HP UNPLUGGED | EP 015 | ft. Mr. K Vinod , Executive Director - Corporate Finance & CFO

Thank you very much, Sudipto. This is something I've been looking forward to, and I look forward to a great conversation for the next few months.

I have been very fortunate to have a varied experience in my tenure thus far in HPCL. A major part of my career was in the refinery at Visakh, and then corporate strategy, and then the important role of oil price risk management — in international trade, IMM, and all that. Then I came into marketing after a long time. My desire to come into marketing was there for quite long because I had spent sufficient time in the refinery. In aviation, it was a short tenure but a very sweet tenure, where we were engaged in price negotiations with AO and in abroad locations like St. Petersburg with Gazprom, where we were able to secure business after quite a long time in collaboration with the marketing and sales teams. The key highlight in aviation was also where we were able to change the aviation turbine pipeline pricing from the Mumbai refinery to the airport, which had been frozen for quite a number of years. During my tenure, we got the oil companies together and agreed to revise that price, which contributed to profitability of about 4 to 5 crores per annum on a continuous basis. I was also able to introduce hedging in aviation, drawing on my earlier learnings in oil price risk management. In LPG, I had a tenure from 2017 to 2022, where I was able to bring about numerous changes, especially in the dealer discount module. Everything was on email, so we moved it into a web-based portal and finally into CRM, so all the information could be available for stakeholders to review. That stood us in good stead when we moved into SAP. I also had the opportunity to introduce fixed pricing in LPG, implementing my learnings from international trade experience, which helped improve the profitability of the SBU.

Thanks for the question. I would say it was simply an objective to cross-apply the learnings I had gained in oil price risk management. I was fortunate to be exposed to that initiative somewhere in 2006-07, when our company embarked on setting up an oil price risk management desk, because oil prices are the most volatile and have a significant impact on our profitability. I had requested to be given exposure in that desk, and I was fortunate that my seniors placed me there. The learnings from that period — we implemented risk management at HPCL in 2007. Although it was a short tenure before the Lehman crisis in 2008, by which we had positions open with Lehman itself, each of those positions were excellent learning experiences. While we had to stop the desk for a short period, the learnings were always within myself and my team. We constantly talked about them and saw how we could revive it. When I got the opportunity in marketing — first at Aviation and then at LPG — I was always looking to structure a product that could help manage profitability or cap costs from a consumer perspective. In LPG, for example, we had customers where I was buying and selling at the same transfer price. While it helped improve volumes and market share, it was not adding to the bottom line. Coming from a finance background, the objective was always to see how we could improve profitability. By marrying my learnings from oil price risk management with the help of our risk management team, we were able to structure a product. I'm very privileged to have handled the selling aspect, with an excellent LPG team — Mohit Davan, Bangsha, Anand, and Mr. Misri who was heading it. Everyone was supportive. In a commercial role, that's a big advantage where you can play multiple roles. I remember standing up and being able to sell this proposition. It took a while, but we persisted and were able to come out for the first time with a product where fixed prices were offered to consumers. About 25-30% of their costs were fuel costs, and they were interested in how to protect themselves from winter price increases in LPG. We gave them a product where we hedged the exposure in international markets with the help of the risk management team, fixed their fuel cost, and I was able to add a significant margin — from zero, it came to 1,500 rupees per metric ton. We ran that trade for close to 6 to 8 months, and that got the ball rolling. Today it has become a trend in other businesses as well. My colleagues who have had experience in this desk have started applying their learnings. This is the differentiator we have in a highly commoditized market — things which can differentiate your service and product, so the customer sees you offering much more value, ultimately improving the bottom line.

I think we are on the cusp of exciting times ahead. Why I say that is, our capex or investment cycle is coming down, and we are looking at our projects being ready for generation of revenue. All the labor and money we have invested significantly is expected to return money to us. For any organization, there is always an investment cycle, then a period when we start reaping the benefits before going in for the next one. We are at that inflection point where we are expecting the businesses we have set up and the capex we have put in will return money. Having said that, this investment cycle has led to an increase in borrowings, because it is always good to have leverage as it is most tax-efficient. The borrowings are high, and in the last couple of years, the pricing regime in the domestic market has been challenging. International events have impacted crude prices, which has a direct bearing on the retail selling prices of MS and HSD. In 2022-23, we had a difficult year because we could not pass on the increase in prices, and that impacted us because we had to continue with our investments in capex to set up those assets quickly so they could start generating revenue. Today, after that, we have had a following year with excellent record profits, which has put us on a very firm footing. What remains is quickly closing out one key project — the resid facility at Vizag. That project comes with a lot of expectations because it is going to improve the margins of the Vizag refinery and put it on a pedestal that will become an envy to most other refineries. All our stakeholders are looking with much anticipation. It should be up and running — mechanical completion somewhere this quarter, with stabilization happening next, so as we progress into the next year, cash flows will improve and refining margins should improve. Our ability to squeeze out more value from that one barrel of crude we are processing will be important. In the past, without this bottom upgradation, we were effectively exporting fuel oil and NAFTA at a loss. Going forward, we will be able to live within our own production. Diesel may be a product we export, but that is something we can manage as a group. The second part is completing our joint venture refinery projects and seeing them start dripping benefits. The theme is to see projects complete quickly so we can start generating revenues. As far as projects are concerned, having gone through such a large investment cycle, it is always better to step back, take a small holiday on capex, see the returns improve, your financial parameters — debt-equity ratio, profitability, net worth — all become steady, and then in the meanwhile, look at drawing new projects. We are doing that. One important aspect is allocation of capital, and as a CFO and ex-finance person, that is an important focus area — how well we are allocating capital to the right businesses which will give good returns. The stakeholders watch from that perspective. While we are a public sector company, there are many shareholders outside, and today we are being watched closely in the market. From November of last year, we have had a very good run-up in prices, and PSU as a segment is being looked at, which was ignored for quite a while. We have played our part in projecting that these investments will start returning. All our stakeholders are looking up to us. The challenge is to see that we as a team at HPCL are able to reap the benefits, retire debt, and come to a comfortable position before we start other aspects. We have moved into SAP and will be looking to leverage the benefits, automate most of our processes, and improve efficiencies. We have a young and energetic team, and monotony is something people do not like. That can be overcome by making processes efficient, which is our focus — so that our teams spend more time in analysis and come out with value-added suggestions to improve business.

I was initiated into HPCL at Vizag Refinery, and I did not even know about Vizag before I moved from Chennai. But I would say it was an experience of a kind. For some reason, I had colleagues all around me who were engineers — either from operations or maintenance. While at office you work with your finance teams, what really helped me was that my immediate circle around me at home included close friends in maintenance, operations, and supervision. It will be news that I had a senior who called me for a refinery turnaround — a finance person has nothing to do at that point to settle bills, but I participated in a turnaround thanks to seniors of that time, Mr. Marar and M. Lashmi Gopal, who gave us the opportunity to experience that. My close friends' conversations at home used to be on the nuances of refinery operations and maintenance. In the early days, I was given the role of financial concurrence for procurement of items and projects. I was designated as a project officer for the VP2 project and got initiated into all of it. In terms of procurement, the inputs I got from my colleagues — I used to go to the warehouse to understand what things were, and I was able to bring about the concept of maintaining inventory levels at the levels you really need, looking at economic order quantity. Vizag had a very good system of binning numbers, but you could find the same inventory item lying somewhere else. My interactions with my team gave me a good sense of the business, which stood me in good stead later in my career — understanding refinery operations. Some very good people like S. Chala were there, solid people in their own right in refinery technical and operations. That technical and commercial knowledge was an enviable mix that helped me later when I chose to move to IMM. This experience in the refinery actually helped me, and I was given a role divergent to finance — handling part of refinery planning and backcasting under Mr. P. That is a pure technical role, but I got an excellent team. I would say these relationships created outside my domain were very important in helping me understand the business. For any finance person, my thought is: understand your business first. That will help you deliver your function much more efficiently. You will be able to relate to problems, appreciate what others are saying, and it will also help you not be taken for a ride. That is where relationships matter, and I always say: outside your domain always helps.

There again, I probably got lucky. I have been surrounded by some very strong women, and I consider them forces to reckon with. There is a lot to learn from women. I had my grandmother, who even at 75-80 — I belong to Kerala, and we used to have large houses and farmlands — even at that age, we all used to look up to her ability to manage things independently: the whole workforce, the farmers, the people who came in for work, measurement of farm produce, running that huge house. Those were the earlier days, and we all as cousins and sisters used to look up to her for that strong ability. Then, in my own life, I lost my father early, when I was in ninth grade, and my sister was about four or five years younger. My mother took a decision: no, I will continue wherever I am — we were in Calcutta at that time — and I will take up a job and support my children. There was a lot of pressure from the family to move to the village, but I think that would have been a different path considering the environment at those times. She was responsible in bringing us back from the dumps and to where we are today. A significant part of the credit goes to her for creating that environment. I embarked on the CA course, which was not easy. I had my fun in college — I did my CA after graduation — and promptly after college I decided I would do my CA, not paying much heed that there was someone who was actually struggling financially. Many people were telling me the course would take long or be tough, but she supported my decision fully. We are here, both of us doing very well, and she is proud. I continue to be amazed by the capacity of women, their ability to multitask — something I do not think we can replicate. They are able to do multiple things, and that soft side, where women are able to display both sides, is something I try to bring in while engaging with my teams. That camaraderie among teams is something I try to foster, and those are my critical learnings.

It is very important to be rooted to your passions. Yes, singing and music especially — from my younger days, starting from a bathroom singer, I would say, my neighbors used to make a lot of things about it, but I did not realize it. The means at that time did not allow me to take up professional music, otherwise I would have moved into that field. Today, I continue to be a student of music. In my weekends, depending on time availability, I have enrolled myself for a class in Carnatic music, and whenever possible I sit for that. The teacher has to be a little more patient because I am probably not as receptive a student at this age, but I would say learning at any point in time keeps you live and alert. Music, while relaxing — especially Carnatic music — because you have to focus on nuances, it helps bring a lot of focus in whatever you do. While it is a passion I carry forward, singing is something I continue to do. Almost before I go to bed, I am either humming or singing something. It gives me good relaxation and I enjoy it. While I was learning violin in my international trade days, the office work would not permit me to continue the training. I moved to vocal singing, and I continue to do that. Whenever possible, I continue to be a student, which gives me the opportunity to be alert and alive.

[Singing]

Thank you so much. Thank you for the opportunity. I enjoyed every bit of it.