 "Indian Oil Corporation, IOC")
In the second quarter of FY24 (July-September), the state-run Indian Oil Corporation Ltd (IOCL) saw a remarkable turnaround as its consolidated net profit soared to Rs 13,713 crore, bouncing back from a loss of Rs 910 crore in Q2 FY23. However, on a sequential basis, the net profit exhibited a 7 per cent decrease from Rs 14,735 crore recorded in Q1 FY24.
The public sector oil marketing company (OMC) saw a significant rise in consolidated annual net profit despite auto-fuel marketing margins crashing and the cost of crude purchases rising. In the latest quarter, the company's revenue from operations dwindled by 11.9 per cent to Rs 2.05 trillion compared to Rs 2.33 trillion in Q2 FY23.
This drop in revenue is primarily attributed to lower earnings from the largest segment of petroleum products, which dipped 12.6 per cent to Rs 1.93 trillion, down from Rs 2.21 trillion in the same quarter of the preceding year. With its 10 refineries accounting for a cumulative 80 million metric tonnes per annum (MMTPA) capacity, IOCL controls nearly 33 per cent of India's refining capacity.
Sales from the petrochemicals business, however, rose nearly 19 per cent to Rs 6,613 crore from Rs 5,558.7 crore in Q2 FY23.
In contrast, the quarter under review saw a 3.9 per cent reduction in revenue from other business activities to Rs 9,524.6 crore, marginally down from Rs 9,917 crore during the same quarter of the previous year.
The company's board declared a dividend of Rs 5 per share, a 50 per cent payout given the face value of Rs 10 per share, with a record date of 10 November, the company said in an exchange filing.
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Surpassing Expectations
Analysts had projected weak results for OMCs due to a substantial fall in marketing gains of blended margins, which fell to Rs 4.7 per litre of fuel sold in the week ending 24 September, according to a note by Nomura. Similarly, Prabhudas Lilladher had pegged blended marketing margins for IOCL in Q2 at Rs 4.4 per litre, down from Rs 8.7 per litre.
However, a strong average gross refining margin (GRM) – the revenue refiners accrue from transforming each barrel of crude oil into refined fuel products – may have helped IOCL.
The benchmark Singapore GRM in Q2 FY24 averaged a higher $9.6 per barrel, up from $3.8 per barrel in Q1 FY24, according to JM Financial.
IOCL reported that the average GRM stood at $13.12 per barrel for the first six months of FY24. This was nearly half the $25.49 per barrel recovered in the same period of the previous financial year.
"The core GRM or the current price GRM for the period April-September 2023 after offsetting inventory loss or gain comes to $12.60 per barrel," it said. Lower GRMs have become a fixture for OMCs over the past few quarters.
In 2022, disruptions in the supply of Russian oil coupled with a decrease in petroleum product exports from China led to a reduction in the supply of refined products, prompting GRMs to skyrocket to a record high of $25.2 per barrel. Consequently, earnings for Indian refiners saw an upswing.
Nevertheless, as Moscow increased supplies to the international market in late 2022 to fund its ongoing conflict in Ukraine, GRMs experienced a swift downturn. Despite this, Indian OMCs continued to secure oil from Russia at a discounted price. But as average levels of discounts on Russian crude have reduced to less than $4 per barrel in FY24, GRMs have slid.
