As elevated crude prices start to impact balance sheets of oil marketing companies in a major way, BPCL, HPCL and IOCL have announced a standard Rs 3 price hike in petrol and diesel, effective today.
This is the first time these state-run OMCs have hiked prices since April 2022 and the move aims to soften the losses for these companies, who are bearing the brunt of the elevated crude prices emanating from the Iran war.
In light of this crisis, oil marketing companies were staring at a cumulative loss of Rs 1-1.2 lakh crore in the first quarter of financial year ending March 2027. But how will these fuel price benefit these OMCs exactly and what does it mean for investors?
Impact of fuel price hikes on OMCs
Mathematically, every half a rupee per litre increase in fuel marketing margins is estimated to lift Ebitda by 7% for IOCL, 8% for BPCL and 11% for HPCL.
Therefore, the Rs 3 per litre hike announced by the three state-run oil marketers translates to a six-unit increase in the Rs 0.5/litre metric, meaning the total improvement to Ebitda could be roughly six times those per-unit estimates.
This is a significant but partial cushion against the large losses these OMCs are staring at in Q1FY27.
HPCL, in particular, stands to gain most on a percentage basis from any margin improvement.
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Why this might not be the end
The decision to hike fuel prices by Rs 3 is far from the end of the road. It is not a full relief measure, but only a partial measure.
In order to totally recoup the losses and reach break-even on their marketing margins, these companies must hike petrol prices by Rs 28/litre more, accounting for a gap of 29.5%. Similarly, OMCs need Rs 32/litre more hike in diesel prices to reach full cost recovery - a 36.5% shortfall.
History tells us that more fuel hikes could follow, in the event the Iran war continues to choke global energy markets.
The last time such fuel hike cycle took place was back in March 2022 due to the Ukraine war. Between March-end to early-April, OMCs hiked prices by Rs 10/litre, with a total of 14 increases within 16 days.
This time around, it remains to be seen how much OMCs increase prices, with the first move already made.
ALSO READ: Petrol And Diesel Prices Hiked By Rs 3 Per Litre
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