New Delhi
High crude oil prices will weaken the profitability of the country’s three state-owned oil marketing companies — Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum Corporation Limited (BPCL) — as they have limited flexibility to pass on higher raw material costs to consumers due to the forthcoming Lok Sabha elections in May 2024, according to source report.
The report points out that the market margins of the three oil companies — the difference between their net realized prices and international prices — have already weakened significantly from the high levels seen in the April-June quarter of the current financial year.
Marketing margins on diesel turned negative since August while margins on petrol have narrowed considerably over the same period as international prices increased.
The earnings of the three OMCs, all of which enjoy aBaa3 stablerating, will weaken in the second half of fiscal 2024 if oil prices remain elevated at current levels of $85/barrel (bbl) – $90/bbl. Still, full-year earnings will remain comparable with historical levels at this price range, the Moody’s report states.
The OMCs, however, will start incurring EBITDA losses in the second half of fiscal 2024 if crude oil prices increase to around $100/ bbl.
Nonetheless, we believe high oil prices are unlikely to be sustained for long as global growth weakens, the report adds.
The increase in raw material costs comes after the price of crude oil jumped around 17 per cent to more than $90/bbl in September, from an average of $78/bbl in 1Q fiscal 2024.
