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Published: October 11, 2023
Updated: October 11, 2023

Oil Marketing Companies (OMCs) Set for Robust Q2 Earnings Amidst Global Challenges

The second quarter of the fiscal year 2024 is anticipated to bring both challenges and opportunities for Oil Marketing Companies (OMCs).

The Impact of Crude Prices:

The second quarter is expected to see a moderation in OMC earnings from the record highs achieved in the April-June quarter. The primary reason behind this is the sharp increase in international crude prices. Despite this, the Q2 results are expected to remain robust, supported by strong Gross Refinery Margins (GRMs) and significant inventory gains.

Global Factors:

Crude oil prices witnessed a substantial rise of up to 30% over the three-month period from July to September. This surge was a result of production cuts announced by major oil- producing nations like Saudi Arabia and Russia, which effectively tightened the global crude supply. However, OMCs are still expected to see an increase in GRMs (including inventory gains), with the domestic brokerage predicting a rise of $14-19 per barrel in the September quarter.

Positive Outlook:

Analysts foresee a robust quarter for OMCs. They project that the profitability of OMCs may soar to ₹26,200 crore in Q2FY24, a significant turnaround from the ₹2,700 crore loss experienced in Q2FY23. This surge in profitability can be attributed to strong marketing margins, which are expected to offset the challenges posed by high crude oil prices.

Moody's Perspective:

In a recent report, Moody's expressed concern about the impact of high crude oil prices on the profitability of India's state-run OMCs. This includes Bharat Petroleum Corp Ltd (BPCL), Hindustan Petroleum Corp Ltd (HPCL), and Indian Oil Corp (IOC), all of which hold a Baa3 rating by Moody's. While the challenges are acknowledged, the overall outlook for OMCs remains positive due to strong GRMs.

Key OMCs:

● Indian Oil Corp (IOC) reported a standalone net profit of ₹13,750.44 crore in the quarter ended June 2023, marking a 36.7% increase from the preceding March quarter. IOC's reported GRM, including inventory gains, is expected to rise significantly by $18.6/bbl in Q2FY24.

● Hindustan Petroleum (HPCL) reported a consolidated net profit of ₹6,765.5 crore in the first quarter of fiscal year 2023-24. HPCL's reported GRM, including inventory gains, is expected to increase by $14.7/bbl in Q2FY24.

● Bharat Petroleum (BPCL) reported a net profit for the first quarter of fiscal year 2023- 24 at ₹10,550.88 crore. BPCL's reported GRM, including inventory gains, is likely to rise by $16.2/bbl in Q2FY24.

Despite the challenges posed by soaring international crude prices, OMCs in India are expected to post robust earnings for the second quarter of the fiscal year 2024. Strong Gross Refinery Margins and significant inventory gains are poised to counterbalance the hurdles, showcasing resilience in the face of global economic shifts.