Low fuel demand growth: HSBC cuts earnings forecasts for OMCs

By: |
August 31, 2021 2:45 AM

The core profit after tax of Indian Oil Corporation (IOCL) in FY22 will be Rs 13,514.2 crore, down 5% from the earlier estimate, according to a note by HSBC. The profit projected for FY23 now stands at Rs 16,467.2 crore, 6% lower than the previous forecast.

Demand for petrol for the first half of August exceeded the level of August 2019 by 3.74%, but diesel still lagged by 7.8%.Demand for petrol for the first half of August exceeded the level of August 2019 by 3.74%, but diesel still lagged by 7.8%.

Analysts at HSBC have trimmed their earnings forecasts for state-run oil marketing companies (OMCs) for FY22 and FY23 from earlier projections, citing lower-than-anticipated growth in the country’s auto fuel consumption.

The core profit after tax of Indian Oil Corporation (IOCL) in FY22 will be Rs 13,514.2 crore, down 5% from the earlier estimate, according to a note by HSBC. The profit projected for FY23 now stands at Rs 16,467.2 crore, 6% lower than the previous forecast.

For Hindustan Petroleum Corporation (HPCL), FY22 profit is seen at Rs 6,424.9 crore, 9% lower than the earlier forecast. Profit projection of Rs 7,230.5 crore for Bharat Petroleum Corporation (BPCL) for FY22 is 15% lower than the previous estimate. The sharp fall in profit projection for BPCL takes into account the sale of its entire 61.7% stake in Numaligarh Refinery.

“We now expect lower refining throughput and sales volumes,” HSBC said. Total sales of petroleum products in FY22 is estimated to be 206.3 million tonne (MT) — around 6% higher than the demand in FY21 when consumption was muted amid lockdowns to contain the coronavirus, but lower than the 214.1 MT of product sold in FY20. Demand for petrol for the first half of August exceeded the level of August 2019 by 3.74%, but diesel still lagged by 7.8%.

Although gross refining margins for Indian OMCs are much lower than historical average levels, because retail fuel rates were constantly increased by them with rising global crude oil prices, OMCs have been earning attractive marketing margins on diesel and mediocre ones on petrol. “Consequently, the combined margins for OMCs are improving and now approaching five-year averages,” HSBC pointed out.

Pump price of petrol in Delhi was Rs 101.49 per litre on Monday and diesel was sold at Rs 88.92/litre. The Centre’s tax (basic excise, surcharge, agri-infra cess and road/infra cess) is currently Rs 31.80 per litre for diesel and Rs 32.90 per litre for petrol, while Delhi state VAT is Rs 23.50 per litre on petrol and Rs 13.14 per litre on diesel. In March and May 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13 per litre on petrol and Rs 16 per litre on diesel, leading to record-high auto fuel rates.

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