MUMBAI: Stronger marketing margins due to stable retail prices and favourable crude oil dynamics will see oil marketing companies’ (OMCs) operating profit surging more than 50 percent to $18-20 a barrel this fiscal from $12 last fiscal.
OMCs earn from two businesses—refining and marketing. In refining, they earn gross refining margin (GRM) and in marketing, they earn from margin on petrol, diesel and other petroleum products sold.
This fiscal, the improvement in marketing margin will more than offset a moderation in refining margins owing to slow growth in global demand for fossil fuels as the world transitions towards cleaner energy sources, Crisil Ratings said in a report Friday.
The resultant healthy accruals will support their capex plans, strengthening their credit metrics, said the report, based on an analysis of public-sector OMCs which account for nearly 90 percent of the sectoral revenue.
Over the past five fiscals, geopolitical uncertainties have impacted oil prices, while retail fuel prices have been range-bound. As a result, OMCs’ operating profit dipped to as low as $0.13/barrel in fiscal 2023, when oil prices averaged $93/barrel, and peaked at about $20/barrel in fiscal 2024, when oil prices softened to $83/barrel, the report said, adding annual margins normalised at $11/barrel.
In fiscal 2025, OMCs’ operating profit of $12/barrel was in line with the decadal industry average. With crude prices averaging $79/barrel, GRM was $6/barrel and so was marketing margin at Rs 3/litre.
According to Anuj Sethi, a senior director with the agency, this fiscal, crude prices, though volatile, are likely to soften to $65-67/barrel and GRMs are expected to remain modest at $4-6/ barrel as moderate global demand and energy transition trends weigh on refining spreads. Amid this, unchanged retail fuel prices will boost marketing margin to $14/barrel or Rs 8/litre, resulting in overall margin soaring over 50% to $18-20/barrel.
This will drive up cumulative cash accruals to Rs 75,000-80,000 crore this fiscal, up from Rs 55,000 crore last fiscal, supporting their Rs 90,000-crore capex plans, largely towards brownfield expansion.
About 80 percent of the budgeted capex is directed towards addressing domestic demand for petroleum and petrochemical products, while the remainder is earmarked for product pipelines, marketing infrastructure and green-energy initiatives.
According to Joanne Gonsalves, an associate director with the agency, while the capex trajectory continues, healthy profitability will limit reliance on external debt. Hence, the ratio of debt to earnings before interest, tax, depreciation and amortisation is expected to improve to 2.2x this fiscal from 3.6x last fiscal.