State-run refiners post combined profit of Rs 32,147 crore as marketing margins improve

State-run refiners post combined profit of Rs 32,147 crore as marketing margins improve

Healthy marketing margins on account of softening crude oil prices in the first quarter of FY24 resulted in the three state-run oil refining companies reporting a consolidated net profit of Rs 32,147 crore and brokerages are optimistic about their performance in this financial year.

Indian Oil, Bharat Petroleum and Hindustan Petroleum beat market expectations and posted strong numbers in the first quarter of FY24, unlike in the corresponding quarter last year, when they posted losses due to record-high crude oil prices amid geopolitical tensions.

Indian Oil, the country’s largest refiner, posted a consolidated net profit of Rs 14,735 crore in Q1 compared with a loss of Rs 883 crore in the first quarter of FY23. Bharat Petroleum and Hindustan Petroleum reported earnings of Rs 10,644 crore and Rs 6,766 crore, respectively.

Profits were driven mainly by improved marketing margins as crude oil prices averaged about $75 per barrel in the quarter against $124 per barrel a year earlier. Margins refer to the difference between crude oil prices and the prices of refined products such as petrol and diesel.

However, their gross refining margins (GRMs) – the difference between the total value of petroleum products produced in an oil refinery and the price of the raw material – declined sequentially primarily because of a significant drop in diesel and aviation turbine fuel spreads.

Hindustan Petroleum’s Q1 profit of Rs 6,766 crore was 88 percent higher than Rs 3,608 crore in the quarter ended March 2023, after processing its highest ever quarterly crude oil throughput of 5.4 million metric tonnes.

“The QoQ improvement was driven by higher refining throughput, strong marketing volumes and a 2x improvement in blended marketing margin,” ICICI Securities said in a report after Hindustan Petroleum’s results.

Overall, Hindustan Petroleum will likely recover strongly in FY24E and FY25E with a sharp increase in refining throughput, led by the commissioning of the 7 million tonne per annum Vizag refinery in Andhra Pradesh and the 9 million tonne Rajasthan refinery, in which it owns a 50 percent share, ICICI Securities said.

The market remains upbeat about the performance of the refining companies in FY24, factoring in improving marketing margins, healthy GRMs and the implementation of various projects.

JM Financial said it raised its estimate for Bharat Petroleum’s EBITDA by 22 percent in FY24 and by 7 percent for FY25. It factored in an auto-fuel gross marketing margin (GMM) of Rs 5 per litre in FY24 (compared with an earlier assumption of Rs 4.5 per litre) and Rs 3.5 per litre in FY25, unchanged from its earlier estimate.

It also expects a GRM of $8.9 per barrel in FY24 (earlier assumption $7.5/bbl) and $7.9/bbl in FY25 ($7.1/bbl earlier).

The brokerage maintained a ‘buy’ rating, saying the integrated margin of refining companies has improved with the moderation in crude prices and normalisation of product cracks (the price differential between crude oil and its products).

However, the downside risks include a spike in crude prices, plummeting Russian discounts on crude oil, and supply issues.