Inventory gains, better refining performance and one-off reversal of provisions saved the quarter for India's largest oil marketer.
Though the operating profit of Indian Oil Corporation Ltd. fell 23 percent sequentially in the three months ended June, it beat estimates. In comparison, operating profit of Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. declined 68 percent and 55 percent, respectively, over the preceding quarter.
Indian Oil also reported higher gross refining margin, or what refiners earn for every barrel of crude processed, than peers because of a surprise inventory gain as crude rose for most part of the quarter.
Usually, a rise in crude leads to an inventory gain as oil marketing companies that bought stock at lower rates can sell through retail outlets at higher prices. While Indian Oil may have sold its existing stock at higher prices, a near 20 percent slump in crude in the last 12 days of the quarter led to inventory losses for its other two peers.
The core refining performance of all three refiners, however, improved. That's because the Singapore gross refining margin—the Asian benchmark—jumped the most in seven quarters.
Still, India's general election, and the reluctance to raise retail prices then, prevented oil marketers from earning higher marketing margin during the period. On average, gross marketing margin—the mark-up earned on sale of every litre of retail fuel—fell 67 percent for petrol and 44 percent for diesel to Rs 1.9 and Rs 3.3 a litre, respectively.
This impacted HPCL and BPCL the most as retail sale of fuel contributes nearly 60 percent and 40 percent, respectively, to their operational profit, according to data compiled by BloombergQuint.
Debt Burden
Barring BPCL, debt of the other two state-owned oil marketers reduced as pending subsidy dues from the government were cleared.
While the debt of Indian Oil and HPCL fell 16 percent and 25 percent, respectively, as of June, BPCL's rose 5 percent may be because of higher capital expenditure.
As of March, the combined debt of the three state-run companies had risen the most in over a decade on account of unpaid dues from the government, BloombergQuint had reported.
Looking Ahead
The oil marketing companies are expected to report higher refining and marketing margins in the three months ending September.
After the general election concluded, the gross marketing margin rose to Rs 3.7 and Rs 3.3 a litre for petrol and diesel, respectively, so far in the ongoing quarter. This is expected to boost the operating profit of HPCL and BPCL.
Besides, the gross refining margin also increased. The Singapore GRM has averaged around $6.5 a barrel so far during the second quarter. A higher gross refining margin means refiners would earn more for processing every barrel of crude.
But Brent crude has been declining. It averaged at $62.84 a barrel so far in the July-September period against $68.47 per barrel as of June. And this could lead to an inventory loss for the refiners.
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