India's largest private fuel retailer, Nayara Energy, has broken the silence on fuel pricing, notably hiking petrol by Rs 5.3 per litre and diesel by Rs 3 per litre. The price hikes come in the midst of the ongoing Iran war that has led to immense volatility in global oil markets. The move also makes Nayara the first major private player in India to issue fuel price hikes.
Backed by Russian company Rosneft and Kesani Enterprises, Nayara currently has a 8.4% market share in India's fuel market. But in a price-sensitive economy, the hikes come as a double-edged sword.
While the move will help Nayara's bottom line, potentially easing pressure on margins amid elevated crude prices, it may trigger a massive market share shift towards state-owned oil marketing companies (OMCs) such as IOCL, BPCL and HPCL, outlets where fuel remains significantly cheaper.
Under normal circumstances, in any business, gaining market share is always a positive. But things get tricky when it comes to Indian OMCs. These companies are already bleeding thanks to elevated crude levels.
According to Nomura, the blended marketing margin loss for OMCs currently stands at a staggering Rs 48.8 per litre. That means every time a car pulls away from an IOCL, BPCL or HPCL pump instead of a Nayara station, these state-backed companies lose nearly Rs 50 per litre.
That brings us to the math. A mere 10% shift in volume from Nayara to OMCs would result in an incremental loss of Rs 202 crore for the state-owned companies.
If the exodus continues, potentially reaching up to 50% volume shift, it would crater OMC balance sheets with an additional loss of Rs 1,000 crore.
As things stand, India consumes roughly 325.7 million litres of diesel and 164.8 million litres of petrol every day. Nayara's share accounts for 27.5 million and 13.9 million litres respectively.
As the private sector pivots to protect its own margins, the burden of energy subsidies is being shoved onto state players, which are already running on low fuel, both figuratively and literally.
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