InvestorQ : Why are the OMC stocks like IOCL and HPCL showing pressure in the quarter with profits falling? Will this be the case for BPCL also?
Arusha Ray made post

Why are the OMC stocks like IOCL and HPCL showing pressure in the quarter with profits falling? Will this be the case for BPCL also?

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2 months ago
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As of now, the results of HPCL and IOCL are already out while the results of BPCL will be announced on 25th May. IOCL and HPCL have seen top line growth in sales revenues but the bottom line has shrunk. The reasons are not far to seek. Higher sales revenues were boosted by high crude prices and robust gross refining margins (GRMs) plus positive inventory translation gains. On the other hand, profits suffered due to marketing margin pressure and weak petrochemical margins in the quarter. It was a two way street.

Let me focus on the marketing margin pressure for a moment. Petrol and diesel pricing formula in India is market based pricing and is decided by the OMCs. However, that is only true of normal circumstances. When the situation is abnormal like elections or spike in crude, then the rule does not apply. That is because as much as oil is economically sensitive, it is a lot more politically sensitive too. OMCs don’t increase the price of petrol and diesel at will and government consent does play a role.

IOCL, BPCL and HPCL lost Rs.17,000 crore between November and March due to static petrol and diesel prices. During this period, crude was up 80% but prices were static. That put the maximum pressure on the marketing margins. OMCs are losing Rs540 crore a day.

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