State-owned three major oil marketing companies – Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation – returned to profitability in the second quarter of the current financial year after reporting losses in the corresponding period a year ago primarily on the back of improved marketing margins and growth in sales volumes.
Marketing margins of the three public-sector companies improved in the quarter under review owing to discounted Russian crude oil even as the OMCs kept the prices of auto fuels unchanged which helped them to recover losses incurred when oil prices were higher last year.
The three OMCs reported a combined consolidated net profit of Rs 27,783.59 crore in the quarter ended September against a cumulative loss of Rs 3,724.39 crore in the same period a year ago.
However, net profit for each of the three companies fell sequentially after crude oil prices jumped to their highest level of $97 a barrel late in September amid tightening supply from Russia and Saudi Arabia in addition to that enforced by the Organisation of the Petroleum Exporting Countries till the year end.
OMCs’ Q2 results have beaten analyst expectations. As per a Nomura report, marketing gains of blended margins fell to Rs 4.7 per litre for fuels sold in the week ended September 24.
Analysts now see OMCs to register healthy marketing and refining margins in the third and the final quarter of the financial year 2023-24 compared to the corresponding levels last year provided that crude prices remain at their current levels of $83-$85 per barrel. Crude prices are expected to be range-bound considering the demand and supply economics, said Prashant Vasisht, Senior Vice President, Corporate Ratings, ICRA.
Motilal Oswal has also increased its net profit estimates for IOCL for FY24 by 13% owing to a robust performance in H1FY24. “IOCL is set to commission various projects over the next two years, which should boost growth further,” it said.
In Q2, the OMCs also reported a growth in their sales volume both in the domestic market as well as exports. While BPCL reported the strongest market sales at 6.6% higher than the same period last year, IOCL reported the highest export volume, up by 50% on year.
Even as the OMCs recorded profits in Q2FY24, their revenue from operations and refining margins fell against analysts’ expectations of a rise from steady demand growth.
The aggregate revenue from operations of the OMCs fell by 11% to Rs 424,228.98 crore in the Jul-Sep quarter from the same period last year. The decline can be attributed to lower prices of petroleum products, gross refining margins, and a volatile oil market globally, especially in the latter half of September.
IOCL recorded a decline of 12% in its revenue compared to last year, the largest among all three OMCs, followed by HPCL with a decline of 10%, and BPCL with 9.1% fall.
Average gross refining margin of IOCL for the Apr-Sep period also fell to $13.12 per barrel from $25.49 per barrel a year ago. BPCL and HPCL reported GRMs at $15.42 and $10.49/bbl from $22.30/bbl and $12.62/bbl compared with corresponding period last year respectively.
Refining margins are defined as the difference in value between the products produced by a refinery and the value of the crude oil used to produce them.
Analysts believe that the OMCs are unlikely to hike auto fuel prices anytime soon as the country heads towards national elections scheduled next year. Earlier, in an interaction with FE, oil minister Hardeep Singh Puri also hinted against a price hike in petrol and diesel rates saying that “OMCs have the capacity to absorb the global crude price shocks as they have made large profits (in the previous quarters) due to low prices.”
“OMCs are estimated to be generating marketing margin of Rs 8.2 on petrol and a marketing loss of Rs 3.8 on diesel in Q3FY24 to date,” Motilal Oswal said in its latest report. The brokerage firm also expects margins to be affected by retail fuel price cuts in the wake of upcoming elections and a rise in crude oil prices due to voluntary supply cuts by OPEC+.
The firm has further increased its net profit estimates for IOCL for FY24 by 13% owing to a robust performance in H1FY24, it said.
HPCL too, on Tuesday, announced its plans to spend Rs 75,000 crore in expansion and diversification in the next five years with an annual expenditure of around Rs 14,000-15,000 crore.
“Around 25-30% of the capex will be for the renewable or gas-based segment, refinery would take another 20% and balance would be for other downstream marketing projects,” said Rajneesh Narang, company’s Director of Finance.