Stocks of oil marketing companies are on the rise as wider margins on higher sales volume helped major players in the sector beat a slump in revenues in the second quarter of 2023-24. A fall in crude prices also aided the rally.
The stock of Hindustan Petroleum Corp Ltd surged 7 percent, Bharat Petroleum Corp Ltd advanced 3 percent, while that of Indian Oil Corp Ltd gained nearly 1 percent intraday on November 8.
The Brent crude skidded over 10 percent from its September peak of $94 a barrel to around $83, influenced by mixed Chinese economic data, increased OPEC exports, reduced concerns about supply shortages, and a stronger dollar.
State-run oil marketing companies (OMCs) returned to profitability with HPCL, BPCL and IOC together posting a consolidated net profit of Rs 27,295 crore for Q2 FY24, rebounding from losses inflicted by a surge in crude oil prices last year.
Indian Oil, Bharat Petroleum, and Hindustan Petroleum led the recovery, beating market estimates. Indian Oil reported a net profit of Rs 12,967 crore, compared to a Rs 272-crore loss last year, while Bharat Petroleum and Hindustan Petroleum posted net profits of Rs 8,501 crore and Rs 5,827 crore in the quarter ended September 30.
Profits of refiners meanwhile dipped sequentially as crude oil prices rallied 11 percent in the previous quarter following production cuts by Saudi Arabia and Russia. While Saudi reduced the output by 1 million barrels per day, Russia cut exports by 300,000 bpd, driving up prices since July.
As the country nears its general elections next year, the OMCs will likely try to keep the fuel prices in check, even with crude at $83 a barrel, analysts said. Petroleum Minister Hardeep Singh Puri recently mentioned that the OMCs are facing under-recoveries despite recent profits.
Motilal Oswal estimates a marketing margin of Rs 8.2 per litre on petrol and a marketing loss of Rs 3.8 per litre on diesel this quarter. The OMCs are unlikely to cut the fuel prices with crude above $80 a barrel, as prices have remained unchanged since April 2022.
In July, CRISIL said the OMCs are set for a significant operating profit rebound in the current financial year, with estimates reaching Rs 1 trillion, a notable improvement from the average of around Rs 60,000 crore between 2017 and 2022, and the previous year's low of Rs 33,000 crore. This expected surge in profitability may firm up the sector's credit metrics, which faced challenges due to subdued profitability and substantial capital expenditure (capex) in recent years. CRISIL Ratings analysed three OMCs, indicating a positive outlook.
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