State-run Oil Marketing Companies (OMCs) booked large profits in the fourth quarter of the financial year, helped by a decline in crude oil prices.
Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) reported a better-than-expected gross refining margin (GRM) in Q4.
GRM is the difference between the per-barrel price of crude oil and the value of refined products distilled from it.
Analysts expect OMCs to benefit in the coming quarters from an improving marketing situation and healthy refining profitability.
Outlook
For financial year 2023-24, analysts anticipate better marketing margins amid range bound crude oil prices due to global recessionary pressure and high interest rates, despite increased demand from China.
Post BPCL results, Motilal Oswal said in a report, “BPCL’s marketing performance can improve further in the upcoming quarter as OMCs are estimated to be generating gross margins of INR9.1/ INR11.6 on petrol/diesel in 1QFY24’td due to decline in crude oil prices.”
Similarly, strong refining margins are likely to benefit OMCs in FY24. HDFC Securities said in a report post IOCL results.
“We expect refining margins to remain strong and, therefore, estimate core GRMs for IOCL at USD 10/10.3 per bbl in FY24/25E.”
Growth at the country’s largest oil refiner is also expected to be driven by commissioning of various projects.
“IOCL is set to commission various projects over the next two years, driving further growth. Refinery projects, currently underway, are expected to be completed as follows: Panipat refinery (25mmtpa) by Sep’24, Gujarat refinery (18mmtpa) by Aug’23, and Baruni refinery (9mmtpa) by Apr’23, according to the earlier guidance,” said Motilal Oswal.
FY23 performance
FY23 was a tumultuous year for OMCs, which booked losses in the first two quarters due to high crude oil prices.
For FY23, IOCL reported a standalone net profit of Rs 8,242 crore, a decline from Rs 24,184 crore in the previous year.
Similarly, BPCL also reported decline in standalone net profit in FY23 whereas HPCL booked loss of Rs 8,974 crore in FY23.
With the decline in crude oil prices on account of inflation and recession worries, OMCs are again reporting positive numbers.
Geopolitical uncertainties and volatile crude prices continue to remain a downside risk for the performance of OMCs.
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