IOCL reports Q2 net loss of Rs 169 crore as refining, marketing margins dip

Higher expenses, lower sales pulled down revenue to Rs 1.98 trillion

Suffering from lower refining and marketing margins, state-run Indian Oil Corporation Ltd (IOCL) ended the second quarter of FY25 (July-September) with a net loss of Rs 169.58 crore (attributable to the owners), compared to the Rs 13,114.3 crore net profit registered in Q2 FY24. On a sequential basis, the oil marketing company's net profit fell from Rs 3,528.5 crore recorded in the preceding quarter.

 

The sharp reduction in net profit in Q2 was due to a crash in average gross refining margins (GRMs)—the revenue refiners accrue from transforming each barrel of crude oil into refined fuel products. IOCL reported that the average GRM stood at $4.08 per barrel in the first two quarters of FY25, 68.9 per cent lower than the $13.12 per barrel recovered in the same period of FY24.

 

 

Meanwhile, analysts estimate marketing margins nearly halved to Rs 4.4 per litre in Q2, down from Rs 8.7 per litre in the preceding quarter. The company’s revenue from operations did not shrink significantly, reducing by 3.24 per cent to Rs 1.98 trillion, compared to Rs 2.05 trillion in Q2 FY24. However, IOCL's expenses rose by 7.49 per cent to reach Rs 2.01 trillion in Q2, up from Rs 1.87 trillion in the year-ago period. The cost of materials consumed, up by 7.6 per cent, and purchases of stock in trade, higher by 6.1 per cent, were the two biggest expenses. 

 

This drop in revenue is primarily attributed to lower earnings from the largest segment of petroleum products, which dipped 3.9 per cent to Rs 1.83 trillion, down from Rs 1.9 trillion in the same quarter of the previous year. For example, IOCL achieved domestic product sales of 2.93 million metric tonnes (MMT) during Q2, while export sales stood at 1.03 MMT. 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 much smaller petrochemicals business, however, rose 3 per cent to Rs 6,813.3 crore, up from Rs 6,613.3 crore in Q1 FY24. The quarter under review also saw a 12 per cent growth in revenue from other business activities to Rs 10,236 crore, up from Rs 9,137.9 crore in the same quarter of the previous year.

 

The company’s shares fell 0.39 per cent to Rs 145.7 on Monday, losing 19.1 per cent in value over the past month.

 

Lower refining margins

 

"The core GRM or the current price GRM for FY24 after offsetting inventory loss or gain comes to $2.97 per barrel," IOCL said. Lower GRMs have become a fixture for oil marketing companies (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 record highs. Consequently, earnings for Indian refiners had seen an upswing.

 

However, while Moscow has kept a check on supplies to the international market in 2023, GRMs for Indian refiners have remained at lower levels. Indian OMCs continued to secure oil from Russia at a discounted price. But as average discount levels on Russian crude have reduced to less than $4 per barrel in FY24, GRMs have slid.