State-run OMCs combined profits tumbled in Q4 amid weak GRMs and elevated crude prices

Indian Oil reported a decline of 49 percent in the consolidated net profit in Q4.

State-run oil marketing companies posted combined net profit of Rs 12,986.9 crore in the fourth quarter of the financial year 2023-24, a significant drop from Rs 21,320.02 crore in the same period last year.

The slump in profits of the India’s oil refiners—Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL)—in the January- March period comes due to elevated and volatile crude oil prices, and decline in gross refining margins (GRMs). Crude oil prices gained 16 percent in the first quarter of calendar year 2024.

In the fourth quarter, Indian Oil reported a decline of 49 percent in the consolidated net profit at Rs 5,487.92 crore, compared to Rs 10,841.23 crore last year. Bharat Petroleum and Hindustan Petroleum witnessed a decline of 30 percent and 25 percent, respectively, in their consolidated net profit in the quarter under review.

The oil refiners had also slashed petrol and diesel prices in the country mid-March by Rs 2 per litre, affecting the company’s marketing margins as crude oil prices gained momentum since then amidst geopolitical tensions. Indian Oil had communicated to Moneycontrol that the slump in profit was due to inventory losses in the quarter as compared to gains in the previous three months.

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The oil ministry said in a press release on May 10 that the OMCs navigated rapidly evolving geopolitics and wide fluctuations in crude prices. The OMCs not only ensured fuel availability at affordable rates, with one of the lowest fuel price inflation globally in India, but also rewarded the shareholders’ trust by posting commendable annual results, the ministry added.

"The combined profit of OMCs for FY 2023-24 stood at Rs 86,000 crore, over 25 times higher than the extraordinarily difficult previous fiscal year. For the full 2023-24 fiscal, HPCL reported a record net profit of Rs 16,014 crore as opposed to a loss of Rs 6,980 crore in the previous year. IOCL capped an excellent year with historical best refinery throughput, sales volume and net profit," it said.

Lower GRMs

Weak refining margins in the quarter amid declining product cracks hit OMCs Q4 performance. Healthy refining margins in the previous quarters had cushioned oil marketers’ performance even when crude prices skyrocketed.

Refining margin of Indian Oil declined to $8.39 per barrel in the fourth quarter, as against $10 per barrel in the previous quarter. Similarly, BPCL’s average GRM for Q4 was $12.48 per barrel as compared to $13.35 in Q3, while HPCL’s GRM declined to $6.95 per barrel in Q4 as against $14.01 per barrel in the same period last year.

“IOCL’s SA adj. EBITDA missed estimates by 27% at Rs107.5bn in Q4FY24, due to weaker refining on the back of inventory losses (~USD2.0/bbl vs. nil est.), as well as core GRM coming in at USD10.6/bbl vs. USD13.0 (Emkay est.). Marketing segment posted steady performance, despite Rs10.2bn negative LPG buffer with seemingly better core marketing margin (inv. loss not known) partly offset by higher opex,” said Emkay Global Financial Services in a note post IOCL results.