State-run oil refiners post combined net profit of Rs 27,295 crore in Q2

State-run oil marketing companies (OMCs) reported a consolidated net profit of Rs 27,295 crore in the second quarter

State-run oil marketing companies (OMCs) reported a consolidated net profit of Rs 27,295 crore in the second quarter of financial year 2023-24, returning to the black. The refiners posted losses last year on account of high crude oil prices.

Healthier marketing margins in the second quarter helped the companies, including Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL), beat market estimates and swing back to profits.

The country’s biggest refiner, Indian Oil, posted a consolidated net profit of Rs 12,967 crore in the second quarter, compared to a net loss of Rs 272 crore in the same period last year. Bharat Petroleum and Hindustan Petroleum posted consolidated net profits of Rs 8,501 crore and Rs 5,827 crore respectively in the quarter ended September 30.

“OMCs are in a sweet spot, given the strong H1FY24 reported so far, though some macro risks with respect to oil prices and the political scenario prevailing in the run-up to the elections. We raise FY24E EPS by nine percent, but retain the FY25 estimate; maintain HOLD with an unchanged TP of Rs 100,” said Emkay Global in a report post Indian Oil results.

However, the refiners’ profit declined sequentially due to a 11 percent gain in crude oil prices from the previous quarter. Crude prices spiked since July after cooling down in the first half of 2023 as Saudi Arabia and Russia cut supplies. Starting July, Saudi Arabia reduced oil production by 1 million barrels per day (bpd) for the rest of the year while Russia cut exports by 3,00,000 bpd to boost prices.

The combined net profit of the three oil refining companies was Rs 32,147 crore in the first quarter of FY24. In a BPCL post results report, Prabhudas Lilladher said, “Marketing sales for Q2 were 12.2 mmt, in-line with estimates. Implied gross marketing margins came in at Rs six per litre (PLe: Rs 4.5/ltr). Margins fell 36 percent QoQ due to a rise in benchmark petrol, diesel prices and an inability to pass on increase in fuel costs. Going ahead, we estimate margins of Rs 5.6/4.1/4.1ltr for FY24/25/26E factoring in upcoming elections."

With approaching elections across the country, OMCs are expected to keep fuel prices unchanged despite crude price trading around $ 85 per barrel currently. In a recent interaction with reporters, Minister of Petroleum and Natural Gas, Hardeep Singh Puri, said even though OMCs have turned profitable in the recent quarters, they are still reporting under-recoveries.

Motilal Oswal said that OMCs are estimated to be generating a marketing margin of Rs 8.2 per litre on petrol and a marketing loss of Rs 3.8 per litre on diesel in the third quarter to date. With crude prices trading above $80 per barrel, OMCs are unlikely to reduce diesel and petrol prices in the country. Fuel prices have been left unchanged since April 2022.