The decision to freeze retail petrol and diesel prices despite a sharp spike in crude oil prices has hurt state-run oil marketing companies (OMCs), which recorded losses for the second consecutive quarter, bringing their total losses to Rs 3805.73 in the first half of the fiscal year 2022-23.

In the July-September quarter, OMCs including Indian Oil Corporation Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL) reported a consolidated loss of Rs 3805.73 crore due to low marketing margins on the sale of petrol, diesel, and domestic liquefied petroleum gas (LPG).

The national government’s one-time payout of Rs 22,000 crore to the three businesses to compensate them for their LPG losses was insufficient. IOCL reported a net loss of Rs 991.55 crore in the second quarter on October 29, compared to a net profit of Rs 6,203.74 crore at the same time last year.


Similarly, HPCL and BPCL both reported quarterly losses of Rs 2475.69 crore and Rs 338.49 crore, respectively. The three OMCs reported a cumulative loss of Rs 18790.17 crore in the first half of the current fiscal year. IOCL recorded a loss of Rs 1270.93 crore between April and September, while HPCL and BPCL reported losses of Rs 11032.81 crore and Rs 6486.43 crore, respectively.

Price Freeze

OMCs modify retail petrol and diesel prices daily based on the rolling average of global benchmark prices over the previous 15 days. However, earlier this year, they maintained their rates despite rising crude oil prices, which harmed their bottom line.

While bulk fuel prices and aviation turbine fuel prices were raised earlier this year, retail gasoline and diesel prices remained stable for about 137 days. The OMCs commenced raising prices only on March 22, although even then, the increase in retail prices did not correspond to the rise in crude prices, in an effort to keep inflation in check throughout the country.

Union Minister of Oil and Natural Gas Hardeep Singh Puri has stated numerous times that OMCs need additional time to recoup losses. Because of unpredictable conditions such as geopolitical tensions and variable oil prices, brokers expect that OMCs will perform poorly.

Due to recession fears, petroleum prices fell on November 8 to $96.99 per barrel for Brent crude and $90.63 for West Texas Intermediate (WTI) crude in the United States. Despite the problems and bleak prognosis, brokerages anticipate that the second half of the fiscal year will be better for OMCs than the first, thanks to solid margins in the refining business.

Downgraded Ratings

Nomura Securities lowered HPCL shares from “Neutral” to “Reduce.” ICICI Securities, too, cut HPCL to “Reduce,” with a target price of Rs 186 per share remaining intact. On the BSE on November 7, HPCL shares finished at Rs 209.80, up 3.05 percent from the previous close.

ICICI Securities maintained IOCL’s ratings and set a target price of Rs 85 per share. IOCL shares closed at Rs 70 per share on the BSE on November 7, compared to the current market price of Rs 68.45 per share. Guru Nanak Jayanti and Kartik Purnima halted bourses on November 8.

IOCL’s earnings per share projections have been reduced by HDFC Securities. We lowered our FY23/24 EPS (earnings per share) estimates by 9/8 percent to Rs 11.3/13 to account for lower crude throughput in FY23, higher debt resulting in higher interest costs, and higher other expenses; however, this was offset marginally by higher marketing volume estimates, according to HDFC Securities.

On November 9, all eyes will be on BPCL shares, which reported its results after market hours on November 7, when the company’s shares ended at Rs 309.60 on BSE.

About IOCL

In May 2018, OMCs part IOCL became India’s most profitable government organization again after earning 21,346 crores in 2017-18. In February 2020, the corporation agreed to buy 140,000 barrels of oil per day from Rosneft.  Further, Indian Oil was ready to launch BS-VI fuels in all of its Telangana retail shops and implement world-class emission requirements by April 1, 2020.

Sales peaked at 410,000 barrels of oil per day on January 26, 2021 for this OMCs. Delek, QatarEnergy, and Saudi Aramco are its key commercial partners, with Abu Dhabi National Oil Company and National Iranian Oil Company negotiating agreements to increase production by 2020. Apollo Hospitals will replace Indian Oil Corporation as Nifty 50 index manager in March 2022.

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