Though price of the Indian basket of crude has fallen 42% since March 16 to $17.66 per barrel, retail prices of petrol (Rs 69.59/litre in Delhi) and diesel (Rs 62.29/litre) have not moved, allowing OMCs to earn more from selling every litre of these fuels.
With retail prices of petrol and diesel remaining unchanged since March 16 despite falling crude prices, auto fuel margins of state-run oil marketing companies (OMC) nearly tripled to Rs 14.72 per litre in the same period, analysts noted. Even though fuel-sale volumes remained as low as the current levels (down 60% year-on-year) throughout the quarter, if such marketing margins are sustained, ICICI Securities estimated that gross profit (on retail fuel sales) of the OMCs in Q1FY21 would be around Rs 20,000 crore (Indian Oil: Rs 9,550 crore, Bharat Petroleum: Rs 5,480 crore and Hindustan Petroleum: Rs 4,980 crore). This is about 60% more than the corresponding period in FY20.
Though price of the Indian basket of crude has fallen 42% since March 16 to $17.66 per barrel, retail prices of petrol (Rs 69.59/litre in Delhi) and diesel (Rs 62.29/litre) have not moved, allowing OMCs to earn more from selling every litre of these fuels. If the operational expenses remain flat y-o-y, auto fuel marketing ebitda (earnings before interest, taxes, depreciation and amortisation) are seen to rise to Rs 6,690 crore for Indian Oil (up 111% annually), `3,840 crore for Bharat Petroleum (up 118%) and Rs 3,490 crore for Hindustan Petroleum (up 119%).
The investment banker noted that a further hike in excise duty on auto fuels appeared imminent, but expected the imposition “only after volumes recover for the benefit of excise duty hike over higher volumes”, and believed that “it would be staggered and not be in one shot”. The government used the Finance Bill 2020 to create room for increasing the taxes on auto fuels by up to Rs 8/litre. In March, the Centre had also hiked the special additional excise duty and road and infrastructure cess on petrol and diesel by a total of `3 per litre, seizing the opportunity afforded by the fall in crude prices.
ICICI Securities added that even if the taxes were raised by the highest rate of Rs 8/litre without changing retail prices, auto fuel margin of OMCs would still be in the range of Rs 9.52/litre -Rs 10.27/litre — much more than the Rs 3.6/litre margin achieved by the OMCs in Q1FY20. Higher auto fuel margins are likely to be partially offset the inventory losses the OMCs have seen to take in the ongoing quarter due to the continuous fall in crude prices. ICICI Securities had recently said the three OMCs could among themselves report massive inventory — crude and products — losses of around Rs 33,000 crore in Q4FY20.