Analysts see a ray of hope for oil marketing firms after a difficult Q2

Although the Indian crude basket fell from an average of $109.5 per barrel in Q1 to an average of $97.87 a barrel in Q2, prices remained high in absolute terms

The public sector undertaking (PSU) oil marketing companies (OMC) like Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL; where ONGC holds controlling stake) had a difficult September quarter for the 2022-23 financial year (Q2FY23) contending with high international crude and gas prices and low gross refining margins or GRMs (Singapore). Although the Indian crude basket fell from an average of $109.5 per barrel in Q1FY23 to an average of $97.87 a barrel in Q2FY23, prices remained high in absolute terms. International gas prices remained very high.
 

For BPCL, the reported GRM was better than estimated while the implied marketing loss per litre of Rs 6, at retail, was lower than the implied loss of Rs 9 per litre in Q1. Refining throughput and sales volumes were both slightly lower than in Q1. The Q3FY23 projections imply that marketing losses will be lower than in Q2, and there may even be small marketing gains. The government has recently approved a one-time grant of Rs 5,580 crore to compensate for under-recoveries on domestic LPG in FY22 and H123. This has been recognised in Q2FY23. 

BPCL’s earnings before interest, tax, depreciation and amortization (ebitda) was Rs 1,430 crore with many analysts having expected losses and the net loss was Rs 300 crore, which was also lower than Street estimates. Estimated capex for the current fiscal stands at Rs 10,000 crore. There has been apparent movement on the disinvestment plans. 
 

HPCL reported ebitda losses of Rs 6,510 crore and net loss of Rs 6,370 crore, which was worse than Street estimates due to marketing and inventory losses. One area of concern was that gross debt rose 82 per cent year on year (YoY) and 45 per cent quarter-on-quarter (QoQ) to Rs 68,500 crore due to accumulated losses. The earnings visibility is low, with sustained diesel losses, volatile GRM outlook and export levies. 
 

HPCL’s domestic sales grew 12 per cent YoY, while overall volumes were up 14 per cent on higher exports. The negative marketing margins narrowed in auto fuels and LPG while total inventory losses were estimated at Rs 2,500 core – Rs 3,000 cr. Interest costs rose 79 per cent QoQ. Capex, as per PPAC estimates, was Rs 3,610 crore in Q2FY23. HPCL received a one-time subsidy on gas losses of Rs 5,600 crore.
 

IOC reported an ebitda of Rs 1,960 crore (down 82 per cent YoY) which was better than a projected operating loss. The GRM was reported at $19.2 per barrel (versus $31.8 per barrel in Q1), which was better than expected. In the refining segment, throughput was 5 per cent higher YoY.