State-owned oil marketing companies (OMCs) are expected to show improvement in EBITDA and net profits in the last quarter of the financial year 2023-24 on a sequential basis, analysts say. The improvement in earnings will be driven by healthy gross refining margins and better diesel marketing margins.
Even though the recent cut in retail fuel price of Rs 2 per litre has compressed retail margins considerably in the last two weeks of March, analysts see Q4FY24 averages to remain mostly unaffected. The retail margins of OMCs in the first quarter of the current financial year 2024-25, however, may see a sharp downturn.
“In the absence of any price correction in international prices and with remote price hike probability before general elections (in Apr-May), retail margins in Q1FY25E may see a sharp downturn as against Q4FY24E,” ICICI Securities said in its preview.
As per analysts at Emkay Global Financial Services, diesel marketing margins of the OMCs were back in the black at Rs 3 per litre against negative Rs 0.5 per litre on quarter. Petrol margins have improved by 12% to Rs 7.5 per litre in Q4FY24.
“OMCs’ earnings will be driven by better diesel marketing margins and gross refining margins,” said Emkay Global.
HPCL is likely to benefit from a 20% on year jump in refining throughput, stronger diesel retail margins, steady petrol margins and lower interest costs,” ICICI Securities said. “This may be offset by a sharp $4 per barrel drop year-on-year in gross refining margins, which is a function of both lower product spreads as well as our assumption that Russian crude benefit could be much lower compared with Q4FY23.” The firm estimates $1.5 per barrel benefit in crude cost for Q4FY24.
Emkay Global also estimates refining inventory gains of $2 per barrel on the back of Brent prices that averaged at $83 per barrel in Q4FY24, down 2% from the previous quarter but closed at $87 per barrel between the two quarter ends.
However, there should be sizeable marketing inventory losses across OMCs due to retail selling price cuts in sensitive fuels, the firm said.
Benchmark gross refining margins have also improved to $7-8 per barrel from $5-6 per barrel on quarter, mainly led by improvement in gasoline spreads..
“We expect BPCL and HPCL to record better EBITDA sequentially, albeit on a low base, while IOCL could see a 7% dip due to inventory loss adjustments.” The brokerage expects Q4FY24 net profit for IOCL at Rs 7,787 crore, while BPCL and HPCL could see profit after tax of Rs 4,719 crore and Rs 3,377 crore respectively.
The country’s upstream companies, on the other hand, are expected to report mixed earnings. While Oil and Natural Gas Corp is expected to register a decline of 4% in its crude output in Q4FY24, output of Oil India Ltd is likely to grow by 5% from last year. Gas production by ONGC is also forecast to fall 5% and that of OIL is estimated to grow 1%, according to Emkay Global.
“We estimate an EBITDA dip of 3% on quarter for ONGC on lower output and higher costs, while Oil India is likely to see 9% improvement, led by lower opex,” the firm said.
Emkay Global projects ONGC’s PAT at Rs 8,437 crore and that of Oil India at Rs 1,326 crore. OIL’s consolidated earnings would remain range-bound on a sequential basis, amid a 10% decline on quarter in Numaligarh Refinery (a division of Oil India) earnings on lower utilization and higher opex, it said.