Despite the fact that the cost of the raw material (crude oil) increased last year, causing significant losses in the first half of the fiscal year 2022–2023 before falling oil prices moved them towards profitability, the report stated
Despite rising raw material costs, increase in the prices of petrol and diesel are improbable, due to the forthcoming general elections, according to Moody’s Investors Service.
The price of petrol and diesel has been frozen for a record-breaking 18 months thanks to three state-owned gasoline retailers: Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), which together account for around 90 per cent of the market.
This is despite the fact that the cost of the raw material (crude oil) increased last year, causing significant losses in the first half of the fiscal year 2022–2023 before falling oil prices moved them towards profitability. Since August, international oil costs have risen, which has caused three retailer’s margins to once again turn negative.
According to an analysis by Moody’s, the profitability of India’s three state-owned oil marketing corporations, IOC, BPCL, and HPCL, will suffer from high crude oil prices. The rise in gross refining margins (GRMs) has somewhat offset the reduction in the OMCs’ marketing profits.
The benchmark Singapore GRMs have improved since June in part as a result of the region’s sustained increase in the consumption of liquid fuels as well as scheduled refinery outages that limited the region’s supply of petroleum products, the report stated.
Despite gradually falling feedstock costs, OMCs’ net realised pricing on the sale of diesel and petrol have mostly stayed steady since April 2022. Brent crude’s price dropped from USD 112 per barrel (bbl) in 1Q fiscal 2023 to USD 78 per barrel (bbl) in 1Q fiscal 2024.
According to the rating agency, of the three OMCs, IOCL and BPCL are better positioned to tolerate any additional increase in crude oil prices than HPCL. The disparity in the OMCs’ capacity to absorb an increase in feedstock costs is due to the different business characteristics of the three OMCs.
The OMCs’ cash flows would be boosted and a portion of their capital expenditure requirements will be met by the Indian government’s Rs 30,000 crore in capital support for the oil marketing sector that was announced in the budget earlier this year. To this end, IOCL and BPCL have previously informed the government of rights issues.
However, Moody’s claimed that it has not taken this into account in its estimates because the timing and amount of such revenues are now unknown.