BPCL, HPCL hit 52-week lows on concerns of large losses in Q2FY23

Analysts believe that OMCs would see further decline in GRMs in Q2FY23, as cracks correct on a sequential basis and lower oil prices would drive sizable inventory losses

Shares of state-owned oil marketing companies (OMCs) were under pressure as Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) hit their respective 52-week lows on concerns of large losses in the July-September quarter (Q2FY23).

At 02:08 PM; these stocks were down 1 per cent, as compared to 0.72 per cent rise in the S&P BSE Sensex. Shares of Indian Oil Corporation (IOC) quoted flat at Rs 66.35 per share, after it hit an intra-day low of Rs 65.55 apiece. Earlier, the stock had hit a 52-week low of Rs 65.20 on September 29.

In the past one month, the stocks of OMCs have underperformed the market as they fell in the range of 5 per cent to 11 per cent, as compared to 1 per cent decline in the S&P BSE Sensex.

OMCs like IOC, BPCL and HPCL may for the first time ever post second consecutive quarterly loss, with a combined loss of Rs 22,300 crore in Q2FY23, as they hold petrol and diesel prices below the cost of production. In the April-June quarter (Q1FY23), these companies had posted a combined loss of Rs 18,480 crore due to erosion in marketing margin of petrol, diesel and domestic liquified petroleum gas (LPG).

Analysts believe that OMCs would see further decline in GRMs, as cracks correct on a sequential basis and lower oil prices would drive sizable inventory losses.

"Diesel marketing margins continued to be negative, along with forex losses. Brent averaged at $99/bbl in Q2FY23 and closed at sub-$90/bbl. The sizeable inventory losses are likely to be baked-in by OMCs, as they stay in the red, while windfall tax-led discount on third-party transport fuel purchases would bring partial respite," analysts at ICICI Securities said.

Besides, according to analysts at JPMorgan, a combination of inventory losses, forex losses, higher interest expenses on higher debt, lower GRMs, and high retail fuel losses would drive large losses for the OMCs.

Meanwhile, last week, the Union Cabinet approved one-time grant amounting to Rs 22,000 crore for the three public sector OMCs. This, in turn, will help them tide over continuing losses to provide domestic LPG.