Brokerage house Nomura Research said that Reliance Industries Ltd and oil marketing companies like Hindustan Petroleum Corp Ltd, Bharat Petroleum Corp Ltd, and Indian Oil Corp Ltd are on course to reap benefits from an improvement in refining margins.
Indian refiners are also poised to gain from their advantageous crude oil sourcing that will allow them to maintain realised margins significantly higher than the benchmark margins, Nomura said.
The brokerage house predicted that the robust marketing margins have substantially improved the operational conditions for the oil marketing companies. As a result, it hopes to see substantial upgrades in earnings for these companies. Nomura has a 'buy' rating on the OMCs.
In a recent interview with Moneycontrol, Gaurav Dua, Senior VP and Head of Capital Market Strategy at Sharekhan by BNP Paribas, said that he expect the OMCs to report Rs 40,000 crore of combined profits in Q1 FY2024 as compared to a net loss of Rs 18,500 crore a year back.
Reuters Singapore refining margins increased 24 percent to $5.4 a barrel in the week ended July 16 from $4.3 in the previous week, led by an increase in spreads across all products except for fuel oil. In the second quarter of FY24, the Reuters Singapore complex refining margin increased to $4.9/bbl, from $4.1/bbl in 1QFY24, the Nomura Report said.
Diesel spreads increased 9 percent to $18.5/bbl from $17/bbl in the previous week, Gasoline spreads increased 5 percent on-week to $14.7/bbl, Jet fuel and kerosene margins jumped 20 percent on-week to $16.4/bbl from $13.7/bbl, naphtha margins increased to -$17.7/bbl on-week from -$20.5/bbl, while fuel-oil (FO) margins declined to -$11.5/bbl from -$7.8/bbl in the previous week, the Nomura report added.
Blended marketing margins declined to Rs 9.9/litre in the week ended July 16 from Rs 10.8 a week back, remaining sharply above the normative levels of Rs 3/litre, diesel marketing margins declined to Rs 9.9/litre from Rs 11 in the previous week, while marketing margins for gasoline moderated 1 percent on-week to Rs 9.8/litre from Rs 9.9/litre.
According to Prabhudas Lilladher, Indian Oil sector’s operating profit is expected to increase by 17.7 percent on-quarter to Rs 832 billion, given the robust performance by the OMCs with EBITDA at Rs 383 billion, led by improving marketing margins (blended margin of Rs 9 vs Rs 3 in Q4) despite lower refining spreads. The brokerage expects marketing margin recovery to drive net profit of OMCs to Rs242.7 billion in the June quarter from Rs 211.20 billion a quarter ago.
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