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Nishi Vasudeva has taken HPCL to record profitability

The company Nishi runs is the fourth-largest in India by revenues - Rs 2.06 lakh crore in 2014/15 - making her unquestionably one of India's most powerful business people.


Nishi Vasudeva

Nishi Vasudeva

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Many, many years ago, a young woman working in Hindustan Petroleum Corporation Limited (HPCL) learned that a senior official of the company had predicted she would never go beyond middle management. But she went further, much further.

Today, Nishi Vasudeva, an IIM Calcutta graduate and daughter of a railway employee who migrated to India during Partition, has been the Chairman and Managing Director of HPCL for a year-and-a-half; she was also its first female chief. She smiles as she recalls that at the campus recruitment in IIM Calcutta, she had rejected a job offer from HPCL - where she had done her internship earlier - because she wasn't getting the role she wanted. She joined Engineers India Ltd instead. But fate willed her to return to HPCL about a year later. And there she has been the past 37 years.

Significantly, barring Nishi, none of the honchos or functional directors of the top three oil PSUs in India - Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL), and HPCL - is female. Even globally, there are few instances of women heading oil companies. One notable exception is Maria das Gracas Silva of the $144-billion Brazilian oil exploration major Petrobras. Closer home, Yasmine Hilton heads Shell's operations in India, but it is very small.

Importantly, the company Nishi runs is the fourth-largest in India by revenues - Rs 2.06 lakh crore in 2014/15 - making her unquestionably one of India's most powerful business people. Of course, the three companies ahead of HPCL are also oil companies - IOCL (revenues: Rs 4.37 lakh crore), Reliance Industries (Rs 3.29 lakh crore) and BPCL (Rs 2.38 lakh crore).

HPCL runs three oil refineries (including one joint venture), 127 depots and terminals, 45 LPG bottling plants, and 13,200-plus fuel retail outlets. Although revenues shrank 7.5 per cent in FY15, profits soared 58 per cent to an all-time high of Rs 2,733.26 crore. At the same time, the company's capacity utilisation of its refineries came to 109 per cent in 2014/15. "HPCL and BPCL are doing very well," says Sudhir Vasudeva (not related to Nishi), former CMD of oil exploration company Oil and Natural Gas Corporation Ltd (ONGC). "Within PSUs they are considered to be something like private companies."

Low crude prices certainly helped. In 2014/15, crude prices crashed from more than $100 per barrel to less than $40. On August 29, 2015, crude prices were at $45 per barrel. According to Sudhir Vasudeva, the oil economy has been shaken by the huge production of shale oil in the US, and continuing high production of crude in the Middle East countries. "The equilibrium of oil imports and exports has changed," he says.

Adds Dilip Khanna, Partner, Oil & Gas, Ernst & Young: "Further, production from other major crude oil supply countries like Canada, Iraq and Russia continued to grow. On the demand side, the slowdown in the Chinese economy and other emerging markets has dented the demand growth outlook." Not surprisingly, HPCL's expenses fell 7.8 per cent to Rs 2.01 lakh crore in FY15 compared to FY14.

Of course, low crude prices do not automatically mean good news for oil marketing companies. Between the time crude is purchased and its refined versions shipped to retail outlets, crude prices could fall further, reducing retail prices as well. "Initially, downstream companies bought crude at high prices and when the prices fell they suffered huge inventory losses," says Sudhir Vasudeva.

Learning from this experience, HPCL negotiated short-term contracts that allowed it to buy crude at estimated lower future prices. Nishi also focused on getting employees to improve efficiencies in a big way. For example, HPCL's LPG (liquid petroleum gas) bottling plant employees - officers as well as workers - suggested ideas that saw the company producing on average 1,554 LPG cylinders per hour in June 2015, compared to 1,140 in June 2009, reducing operating cost from Rs 573 to Rs 520 per metric tonne.

New recruits were also asked for ideas. One such idea was to replace dealer-specific lock and key for a web-based electro mechanical locking system with a truck-specific one to enable more efficient tracking of fuel-carrying tank trucks using GPS and mobile technologies. The company estimates this innovation will save it Rs 73.7 crore over five years, and savings to dealers will be Rs 450 crore.

Nishi also introduced an integrated margin management system, or IMM, in May 2014. "Normally, crude procurement people would optimise purchases, refineries would optimise their systems, and marketing-distribution setup would optimise their distribution (separately)," explains Vasudeva, who reads up and prepares for important meetings at night, and likes to listen to old music - both Hindi and English - to unwind. "But once you integrate all three, you get much better value."

Every month a meeting of the IMM team - headed by an executive director, and including heads of retail, operations, distribution, refinery, IT - is held to determine how much fuel sales is likely the next month. The forecasting goes down to the level of how much of each product would be needed in each depot and terminal. This forecast helps the company buy exactly the quantity of each product that it needs, and thus prevent over-purchase of any product, saving unnecessary cost.

"Normally, crude procurement people would optimise purchases, refineries would optimise their systems, and marketing distribution setup would optimise their distribution. But once you integrate all three, you get much better value"

According to Pushp Kumar Joshi, HPCL's HR Director, this initiative has enhanced synergy between HPCL's functional departments and helped the company improve its margins. Operating profit margin in FY15 was 3.31 per cent compared to 2.75 per cent in FY14, and 2.63 per cent in FY13. And net profit margin improved to 1.32 per cent in FY15, the first time it crossed one per cent in four years. "During her tenure as CMD, there has been a remarkable improvement in terms of focus on results," says Joshi.

Despite the impressive performance, HPCL's profit margins are still lower than competitors like BPCL and IOCL. BPCL had operating profit margin of 4.42 per cent and net profit margin of 2.14 per cent in FY15, and IOCL's corresponding numbers were 3.65 per cent and 1.21 per cent. But Nishi is confident that initiatives like IMM will help HPCL get a leg up on competition in 2015/16.

ONGC's Sudhir Vasudeva says that traders buying crude futures point to crude prices not crossing $60 to a barrel till 2018. A forecast by IMF sees crude prices going up slowly over the next few years to touch $69 per barrel in 2020, which should be good news to oil marketing companies like HPCL.

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The company has faced one setback, though. A new refinery that was supposed to come up in Barmer, Rajasthan, as a joint venture with the Rajasthan government, has been put on hold by the new BJP state government. As of today, the land has been allocated (as part of the government's 26 per cent equity stake), and a boundary wall put up. Beyond that, nothing has moved. A proposed capacity of 9 MMT for this plant would have taken the company's capacity up by almost 40 per cent. While admitting that it is a setback to HPCL's future strategy, Nishi says the company is augmenting capacity of its existing refineries in Mumbai and Vizag to a total of around 27 MMTA, from current 15 MMTA, by 2020.

Having taken over the reins of HPCL on March 1, 2014, Nishi is set to retire on March 31, 2016, giving her two years in the corner room. She can retire easy, but she has a small regret - she was never transferred out of Mumbai to small depots in other parts of the country, a process almost all oilmen in India have to go through. "I wanted to work in the depots, but I was never sent," she says, the tinge of disappointment obvious in her voice.

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