Oil Cos to strengthen profits as consumers suffer from rising fuel prices

The oil price rise may be hitting the fuel consumers hard, but it is the oil companies that are making the most from the current situation, strengthening their margin on the sale of petrol and diesel and jacking up profits.

At the current historic high of fuel price levels in the country, the margin taken by the oil marketing companies (OMCs) on retail sale of petrol and diesel has touched a high of aground Rs 3 per litre.

What this means is that while rising fuel prices burn a bigger hole in the consumer’s pocket, the OMCs are increasing their earnings and getting a lift in the current difficult environment created by the Covid-19 pandemic.

According to a research report from ICICI Direct, all oil marketing companies are expected to strengthen their earnings in April-June quarter of FY22 on the back of rising marketing margin and improved gross refining margin. Though profit of companies is expected to fall quarter-on-quarter due to exceptional gains made by some of the companies in the January-March period, as on a YoY basis, they would make more money in Q1.

As per the brokerage report, privatisation bound BPCL is expected to report net profit of Rs 2,307.7 crore, down 80.7 per cent QoQ as company reported exceptional gains of Rs 6,993 crore in Q4FY21.

Similarly, HPCL is expected we to report robust profit in Q1 at Rs 1,520.7 crore. Though this is down 49.6 per cent QoQ, it is still very good considering if Q1 also saw the most devastating phase of Covid virus that disrupted economic activity and resulted in fall in marketing volumes for fuel marketeers.

With regard to IOC, the estimate is it’s profit PAT is estimated at Rs 5,480.3 crore, down 37.6 per cent QoQ but the company would improve gains due to rise in marketing margin during the quarter.

For all the OMCs the gain is coming in wake of regular revision of retail price of petrol and diesel since the beginning of the financial year on April 1. Since then, pump price of petrol had increased by up to Rs 11 per litre while diesel by Rs 9 per litre. This as per analysts may have hurt fuel consumers but has pushed up marketing margins for OMCs back to about Rs 3 a litre. This means companies are gaining from the rise more than expected.