The recent cut in prices of petrol and diesel is unlikely to impact the marketing margins of the company, said Shrikant Madhav Vaidya, Chairman of Indian Oil. “We should not have much impact on the bottom lines,” Vaidya said while addressing reporters here, adding that the company will be able to take any call on further price reductions after witnessing how the global crude prices behave.

Moreover, analysts also believe that the reduction in auto fuel prices is unlikely to impact profitability of the OMCs but have only marginal impact.

“The cut is within the comfort zone (petrol cut was lower than our greater Rs 3 per litre expectation), and would not impact our FY24E earnings for IOCL, BPCL, and HPCL,” Emkay Global Financial Services said in its report. The firm believes that the consequent margin impact will only be for a brief period of nearly 2 months.

ICICI Securities also estimate that the retail fuel margins of the OMCs will remain relatively steady at Rs 4 per litre for petrol and Rs 2 per litre for diesel.

“This is no doubt a sharp decline from the 9MFY24 average of Rs 7.2 per litre

for petrol and Rs 2.6 per litre for diesel but given only 15 days odd impact for March, FY24E blended margins do not get impacted materially from this cut,” it said.

Analysts also see a possible deepening of the deregulation with daily pricing coming back once the national elections are over with enough room to recover any under-recovery.

“During the next two months, oil price movement is likely to play on sentiments. Our belief is that any correction in stock prices would be an attractive entry point. Hence, we maintain our constructive stance on OMCs,” said Emkay Global.

After the reduction, the gross marketing margin hit to OMCs is around Rs 1.6-1.7 per litre with petrol at Rs 5.0 per litre and diesel at Rs 1.4 per litre, according to analysts at Emkay Global.

“This cut will be effective for next 2-2.5 months and once national elections are over, we would return to a normalized margin scenario, with higher opex over the years likely to set margins higher than Rs3-4/ltr,” it said.

Analysts at Prabhudas Lilladher expects the high gross refining margins of OMCs to continue due to inadequate global capacity expansion.

“In the short term, with some Russian refineries operating below capacity due to the ongoing conflict, we anticipate that GRMs will stay elevated. However, looking ahead, we foresee a market glut over an extended period,” the firm said.

Moreover, with OMCs targeting new capex plans and aiming for net-zero by 2040, analysts expect that the government will allow them enough freedom to earn healthy returns FY25 onwards with the only risk being material upsides in crude oil prices.

On Friday morning, the shares of the three OMCs plunged by 8% after they announced a cut of Rs 2 in auto fuel prices. Share prices of Hindustan Petroleum Ltd fell down by 7.73% to Rs 461.50.

Bharat Petroleum Ltd tumbled more than 5.43% to Rs 575.70 on Friday, compared to its previous close at Rs 609 on Thursday, while that of Indian Oil Corporation tanked more 5.07% to Rs 161.80 during the session, against its previous close of Rs 170.45.

This is the first time the OMCs have cut auto fuel prices after April 2022.