Public sector oil marketing companies (OMCs) saw a sharp decline in net profit in the first quarter of the fiscal year, after reporting record-high earnings in the previous quarters. The fall in profits of the respective companies came amid weak gross refining margins (GRMs) and under-recoveries on sale of LPG or cooking gas cylinders.
The combined consolidated net profit of the three state-owned OMCs—Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL)—slumped 77 percent to Rs 7,371 crore in the quarter, compared to Rs 32,051 crore in the same period last year.
Following the results, HPCL said the reduction in its GRMs was primarily due to lower cracks—the difference between the price of one barrel of crude oil and one barrel of a specified product—in line with the trend of international product cracks.
The price of crude oil in the global market was also higher in the period compared to the previous fiscal due to geopolitical tensions arising from the conflict in Israel.
IOCL's consolidated net profit declined 75 percent to Rs 3,723 crore in the quarter ended June 30, while that at BPCL and HPCL fell by 71 percent and 91 percent, respectively.
Hit by low GRMs, LPG under-recovery
Primarily due to a fuel supply glut, refining margins of the stater-run OMCs remained low in the quarter under review..
IOCL said its average GRM fell to $6.39 a barrel against $8.34 in the year-ago period while BPCL’s GRM dropped to $7.86 per barrel from $12.64 per barrel last year. HPCL’s GRM declined to $5.03 per barrel, compared with $7.44 in FY24.
“HPCL’s reported GRM fell 28%/32% QoQ/YoY to US$5/bbl (PLe: US$2.7/bbl). In Q2-FY25TD, Singapore GRM continues to remain soft at US$4.4/bbl. Along with this, given adequate capacity expansions in China, India and the Middle East amid weak demand prospects GRMs are expected to remain weak in the long term,” said brokerage Prabhudas Lilladhar in a report after HPCL declared its numbers.
Additionally, the companies' declining profits could be attributed to under-recovery in the LPG segment in a market where the price has lately been government-determined.
“BPCL took a hit of INR20b due to LPG under-recoveries in 1QFY25. At the current Saudi propane prices, BPCL is losing INR6b/month on LPG but remains hopeful of financial support from the government,” said Motiwal Oswal's report that followed the BPCL earnings.
Even though domestic demand of petrol and diesel are met by the Indian refiners, LPG production has remained stagnant in the country. According to oil ministry data, LPG imports increased to 18.3 million tonnes in FY23 from 11.4 million tonnes in 2017-18, while domestic LPG production grew by only 4 percent in the period despite rising consumption.
Marketing margins on fuel sale
The companies’ marketing margins on petrol and diesel in the quarter remained healthy but were lower than the previous quarter. Motilal Oswal said BPCL's marketing margin was higher than its estimate at Rs 4.80 a litre, compared to Rs 5.70 per litre in the fourth quarter of FY24.
“Marketing sales volume (excluding exports) came in at 13.2mmt in 1QFY25 (vs. 13.2mmt in 4QFY24). OMCs are currently earning a gross marketing margin higher than our assumption of INR3.3/lit for both petrol/diesel,” said the Motilal Oswal report.
Crude oil prices climbed to around $90 per barrel in April amid the war between Israel and Hamas but later settled around $82 a barrel. Oil prices were trading below $80 per barrel last year in the quarter.
Before turning profitable in FY24, state-run OMCs had reported high losses in some quarters of 2022-23 due to high international crude oil prices amid the Russia-Ukraine war while coping with price freeze in the domestic market.
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