Oil marketing companies in India hike margins while consumers pay hefty price for fuel: ICICI Securities

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Even as consumers continue to pay higher prices for petrol and diesel, country’s biggest oil marketing companies are expected to reap in higher margins on sale of the two products substantially improving their profitability, claims a report by ICICI Securities.

As per oil sector analysts of ICICI Securities, at current retail price of petrol and diesel, OMCs are making a net marketing margin of Rs 4.78 per litre, much higher than levels prevailing in previous months. What more, the companies are making money on sale of petrol and diesel while keeping the retail price of the two products unchanged for over a month now, denying consumers of price cuts on fuel prices during the current difficult period.

According to the report by ICICI Securities, auto fuel net marketing margins are estimated at Rs 4.43 per litre in H1FY21.  “With net margin at Rs 3.28 per litre in Q3FY21 till date, it appears likely that net margins would be higher than our FY21 estimate of Rs3.3/l,” ICICI Securities projected in its report on the oil sector.

OMCs are also seeing an increase in consumption of petrol and diesel as the unlocking of post Covid-19 related lockdown has kicked up demand for fuel. OMCs may gain further from Increased volumes in addition to the higher net margin available on the products.

According to the brokerage, in September 2020, consumption of petroleum products was down just 4 per cent YoY (19 per cent in H1FY21), diesel down 6 per cent YoY (down 25 per cent YoY in H1), while petrol was up 3 per cent YoY (down 21 per cent in H1). In October 2020, petrol consumption was up yet again at 4.2 per cent YoY, even diesel was up 6.6 per cent YoY.

The report said that though weak gross refining margin (GRM) and diesel cracks are a concern for OMCs, underlying data is improving especially with inventories declining. Even in India, petrol and diesel inventories continue to fall. This augurs well for OMCs; their valuations are cheap and dividend yield high.

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