OMCs' profits seen diving 88% to Rs. 3,600 crore in FY20
Financial Express, Delhi   26-May-2020

High inventory and forex losses are seen to cut the profits of state-run oil marketing companies (OMCs) by 88% annually to Rs 3,600 crore in FY20. Also, analysts expect these firms’ profits to remain lower than FY19 levels, in both FY21 and FY22, due to muted marketing margins and stagnant volumes.

Global brokerage firm Nomura has also expressed its disappointment in the de facto government controls over the pricing of auto fuels, which are seen to restrict OMCs from boosting their marketing margins, a situation that adversely impacts their balance sheets when global oil prices firm up.

Such developments made Nomura downgrade Indian Oil Corporation (IOCL) and Hindustan Petroleum Corporation (HPCL) from ‘buy’ to ‘neutral’. Although the agency maintained ‘buy’ rating for Bharat Petroleum Corporation (BPCL), driven by the option for its divestment, the analysts noted that they ‘are now less sanguine’ about the deal.

Due to increased market concerns, Nomura has also lowered the BPCL deal valuation to Rs 600/share from Rs 788/share estimated earlier.

“No daily price change in the last two months is disappointing and our confidence in ‘deregulation’ has declined further,” Nomura said. Plus, with the recent revival in crude prices, OMCs’ margins are seen to compress further. Petrol and diesel in Delhi remained unchanged from March 16 to May 4 while the price of the Indian basket of crude has fallen 23.5% to $23.38/barrel in the same period. Retail fuel prices had risen in Delhi on May 5 reflecting the hike in state VAT, and have remained unaltered since then.