Oil marketing companies such as Hindustan Petroleum Corporation and Indian Oil Corporation are expected to report bumper profits for the first quarter, thanks to their decision not to pass on the benefits of low crude oil prices to consumers.
According to analysts tracking the oil and gas sector, oil marketing companies saw their margin on petrol and diesel zoom to Rs 9/litre in Apr-Jun from Rs 3/litre in the preceding three months.
This is expected to result in the three oil marketing companies – BPCL, HPCL and IOCL – reporting strong profits for the Apr-Jun period.
“We expect oil marketing companies to report yet another robust quarter supported by super high auto fuel marketing margins, as they do not change petrol/diesel prices despite a decline in the international product prices amid lower Brent crude oil price," pointed out analysts from broking house Sharekhan.
The three oil marketing companies are expected to have increased their margin on one litre of petrol and diesel to around Rs 10 by early this month, said analysts Ramesh Sankaranarayanan and Sanjay Agarwal from Nirmal Bang.
For the Apr-Jun period, the three companies would have earned an average of around Rs 7.5 litre during the April-June period, they estimated. Hence, said the analysts, they would see “a massive profit” on their operating level instead of the loss they posted a year earlier and the relatively modest profit booked in the preceding quarter.
“All eyes will be on OMCs, which we expect to report ‘stupendous’ 1QFY24 results,” they added.
Under India’s ‘market-linked’ pricing mechanism, oil marketing companies are expected to increase or decrease the selling price of petrol and diesel based on the international price of crude oil.
However, they were forced to keep prices stable last year because of several state elections, despite a rise in crude oil after Russia attacked Ukraine in February last year.
To ‘compensate’ for that, the oil companies have been allowed to keep prices high even though crude oil prices have fallen considerably this year.
As a result, Indians are paying among the highest prices in the world for petrol and diesel this year, inflating profits for the companies.
Nirmal Bang analysts expect BPCL to post a profit of Rs 7,600 crores for the Apr-Jun period, while HPCL is expected to post a profit of Rs 4,042 crore and IOCL is seen posting a profit of Rs 8,348 crores.
Brokerage Prabhudas Lilladher expects the Indian Oil sectors to report an operating profit of Rs 83,200 crore in Apr-Jun, up 18% from the preceding quarter.