BHUBANESWAR/MUMBAI: After share prices of state-owned oil refining and marketing companies were hammered on the stock exchanges on uncertainty over subsidy burden, chairman of Hindustan Petroleum Corporation (HPCL) tried to calm the nerves calling for a conference call with equity analysts.
In a tweet late on Friday, HPCL quoted its chairman MK Surana as saying that the government decision asking OMCs to absorb Rs 1 a litre on petrol and diesel prices a temporary intervention in larger public interest to tide over the current price scenario.
“As per our understanding, MS & HSD (petrol & diesel) prices continue to be deregulated and will vary on a daily basis, based on international product prices and exchange rates. HPCL will do its best to mitigate any impact on Co’s profitability,” Surana said.
While none of the oil company executives could be reached for a comment, Bharat Petroleum Corporation (BPCL), as well as Indian Oil Corporation (IOC) tweeted similar assurances that the deregulation of oil prices are intact.
“With daily pricing of MS & HSD, backed by strong fundamentals and sustained performance that we are known for, the current volatility in the market including the impact of recent price revision, we are quite confident, will be managed in the coming days,” BPCL said.
By then, enough damage was done with several brokerages downgrading OMC stocks, and a clean Rs 1.3 lakh crore in market value wiped out. BPCL crashed 25 per cent to Rs 247.65, HPCL down 23 per cent at Rs 166.60 and IOC down 19 per cent at Rs 114.
While the fuel price cut is a benign move for the consumer, it is likely to hit the operating profits of OMCs in this financial year by an estimated Rs 6,000- 6,500 crore. Analysts estimate an annualised impact of Rs 14,000 crore on OMC’s EBITDA.
“It is also possible that the government may further intervene if the crude prices were to continue to move up and the rupee continues to depreciate. Further, it shows that price deregulation works well in a benign crude scenario, but in a rising crude scenario, the same does not hold,” said India Ratings.
Profitability of the private retailers may also be hit though by a smaller margin if they decide to go ahead with the price, the ratings firm said. This could also put a break on their retail network expansion, it added.