OMCs face Rs 5,000 crore in under-recovery in Q4FY23: Nomura

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Oil marketing companies (OMCs) such as Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) and Indian Oil (IOCL) may have to bear an under-recovery of Rs 5,000 crore (Rs 50 billion) on the sale of auto fuels in the fourth quarter of this fiscal, brokerage firm Nomura has said.

This is significantly lower than the under-recovery numbers reported earlier in the fiscal when the OMCs were estimated to have borne under-recoveries of up to Rs 1 trillion in 9MFY23.

The improvement in the bottomline was thanks to a fall in crude prices but the brokerage’s analysts do not believe it will last in the near term and have retained their reduce rating on all three stocks.

While blended marketing margins are looking better, on a week on week (Rs 3.3/litre versus Rs 0.7/litre) and quarter-to-date over the previous quarter (Rs 1.7 versus Rs 1.4), they may lose their buoyancy once global demand recovers, the report said.

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“Based on current crude and product prices, blended marketing margins are at super-normal levels of INR4.4/liter, albeit these are unlikely to sustain in the near-term, in our view, underpinned by a strong global diesel demand and inventory drawdowns in the EU as the bloc is unable to fully offset the supply disruption from Russia,” they wrote in the recent "Energy markets in flux" report.

Media reports had suggested that oil marketers are in discussions with the government to raise prices but the brokerage’s analysts are not optimistic of a positive outcome.

“Despite the significant under-recoveries, we believe that the probability of a price hike is very low in the current market situation; however, in the off-chance that the OMCs are allowed to raise prices for auto fuels, it would be a material positive,” they wrote.

Also read: State-run oil marketers seek Rs 50,000-crore damages on retail sale loses: Sources

In an earlier report, the analysts had drawn attention to the mounting debt levels at the OMCs.

IOCL’s gross debt increased 30 percent to Rs 1.4 lakh crore from end-FY22 levels. BPCL’s debt has risen 20 percent to Rs 40,300 crore and HPCL’s 49 percent to Rs 64,200 crore.

To top it, the oil marketers may have to deal with elevated crude prices, with global oil demand set to rise to record levels.

HPCL closed at Rs 223.85, BPCL at Rs 320.45 and IOCL at Rs 77.3 on BSE, on February 22.