Q1 results: What to expect from oil marketing companies

Moneycontrol Bureau

Oil marketing companies seem to be on a slippery ground at least in the June quarter due to the accumulated under-recoveries on certain petroleum products which they sell. These companies which include Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL) and Indian Oil Corporation (IOC) may not be profitable as even a weak Rupee has hurt these firms who buy crude from overseas markets.

The most critical aspect which brokerages have explained, is the subsidy sharing formula in which the government, oil explorers and oil retaillers share the subsidy burden to help the latter which sells petroleum products below cost. Traditionally, all three have been sharing 33% each, but in FY12, the government said it is deriving new a formulae but as of now there is no clarity on what the subsidy sharing formula will be like and hence each quarter, the percentage of subsidy sharing differs.

However, during the quarter, analysts have estimated that oil companies will receive Rs 20,000 crore whereas it has gross under-recoveries of around Rs 44,000 crore and hence, the companies may report losses, says ICICI Direct in a note.

The other important factor on which these oil companies are dependent is the Rupee movement against the dollar and  vis-a-vis the crude prices. During April and May, crude stood at USD 118/bbl and USD 108/bbl, respectively. Despite the Rupee depreciating against the USD, the steep decline has resulted in lower under-recoveries for OMCs on account of selling diesel, kerosene and domestic LPG at subsidised rates. During the first half of June 2012, OMCs continued to lose Rs 446 crore  per day compared to Rs 563 crore per day in April 2012. OMCs continued to lose Rs 10.2/liter, Rs 30.5/liter and Rs 396/cylinder on diesel, kerosene and domestic LPG, respectively, during the first half of June 2012,"  states Kotak Securities

Have a look at company specific estimates by brokerages for HPCL, BPCL, and IOC's Q1 earnings.

BPCL: Brokerages expect around 35% jump in sales, YoY due to an increase in retail sales volumes and higher product prices. Refining margins may touch $1.9/bbl vs. $3.0/bbl, YoY. Its losses are likely to increase to Rs 5000 crore from 25619 crore,YoY.

HPCL: Brokerages expect a 29.1% YoY increase in revenues due to an increase in retail sales volumes. Refining margins is expected to be $1.4/bbl vs. $1.1/bbl, YoY. Net loss for the company is expected to be around Rs 12,000 crore from Rs 31187,YoY

IOC: Revenues are estimated to be up 16.7%, YoY. Refining margins may hover around  $1.2/bbl vs. $4.7/bbl YoY. Net loss is may hit Rs 4,900 crore from RS 30803 crore. YoY.