InvestorQ : Can you explain the break up of losses of IOC, BPCL and HPCL and how they came about?
Mary Joseph made post

Can you explain the break up of losses of IOC, BPCL and HPCL and how they came about?

Arusha Ray answered.
1 month ago

It has not been the most memorable quarters for the downstream oil companies in India which comprises of Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum. On a combined basis, these 3 PSU refining and marketing companies reported a aggregate losses of Rs18,500 crore in Q1FY23. Ironically, the GRMs were strong in the quarter, but the negative margins in marketing segment had a negative impact. All the 3 companies made losses, although the losses of IOCL were lower compared to HPCL and BPCL.

Indian Oil Corp or IOCL reported net loss of Rs1,993 crore for the June 2022 quarter. However, IOCL accounted for just about 10% of the total losses of the OMC companies put together. The reason being that IOCL reported gross refining margins of $31.8/bbl as against the street estimates of $24.2/bbl. Being predominantly a refining outfit, the negative impact of marketing margin compression was limited. However, next few quarters may be testing for IOCL since the benchmark Singapore GRM for Asia has fallen from $30/bbl to $5/bbl.

Let us now turn to why BPCL and HPCL reported much bigger losses? BPCL and HPCL are predominantly marketing companies with a smaller refining franchise. As a result, their losses from negative marketing margins more than offset the gains from solid GRMs. Both the companies were selling petrol and diesel at substantially less than the gate cost. This resulted in much larger losses reported by BPCL and HPCL. However, since the prices of crude have fallen sharply as have GRMs, HPCL and BPCL should be in better recovery mode.

For Q1FY23, BPCL reported net losses of Rs6,291 crore while HPCL reported net loss of Rs10,197 crore. If petrol and diesel prices kept pace with crude prices, there would be no problem. However, in India, petrol and diesel are more of social and political issues than economic issues. They suffered because they were actually selling petrol and Rs9 below the landed cost and diesel at Rs15 below the landed cost. In addition, there were forex losses on hedges and inventory losses due to excise duty cuts. HPCL GRMs in refining were just $16.7/bbl against street expectations of $22/bbl. BPCL GRMs were as per street expectations.