Worst may be over for OMCs due to debt increase in Q2, depreciating rupee: Fitch

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The worst may be over for Indian oil marketing companies (OMCs) including India Oil, Bharat Petroleum, and Hindustan Petroleum, after a significant debt increase in the second quarter of the current financial year on marketing losses, a depreciating rupee and high working-capital needs, according to Fitch Ratings.

The credit rating agency expects the marketing segment to turn profitable from FY24. The retail losses from auto fuel prices that have been frozen for around six months amid elevated crude oil prices kept the OMCs’ profitability under pressure in 2QFY23, said Fitch in its report.

Also Read: State-run OMCs report consolidated loss of Rs 3805 crore in second quarter

This was driven by losses in diesel sales, while losses in petrol sales moderated, despite a fall in average crude oil prices to $98/barrel (bbl) in the second quarter from $112/bbl in the first quarter of FY23.

Last month, the Union Cabinet approved Rs 22,000 crore one-time grant to three PSU oil companies - Indian Oil, Bharat Petroleum, and Hindustan Petroleum -for LPG losses.

On October 1, the OMCs cut the price of the 19-kilogramme commercial LPG cylinder from Rs 1,885 to Rs 1,859.5 in the national capital marking the sixth reduction in the price of commercial LPG since June 2022. In all, the rate of the 19-kilogramme LPG cylinder has come down by Rs 494.5.

OMCs may seek government support to cover the under-recoveries on diesel and petrol sales as well, although the presence of private fuel retailers may add to the complexities of any direct support, added Fitch in its report.

At 2:45 pm, shares of Bharat Petroleum were trading 0.06 percent higher at Rs 308.70 apiece on the BSE, while Indian Oil traded 0.65 percent lower at Rs 69.30 apiece on the BSE.