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BPCL, IOC, HPCL stocks slide 1-3% on reports OMCs may bear LPG subsidy cost

The move is also sentimentally negative for OMC stocks as investors fear that price cuts on petrol and diesel could be next in line ahead of the assembly and general elections

Photo: Bloomberg

Photo: Bloomberg

SI Reporter New Delhi

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Shares of oil marketing companies (OMCs) were under selling pressure in Wednesday’s trade, a day after the government rolled out a Rs 200 subsidy on domestic LPG cylinders. 

Stocks of Indian Oil Corp (IOCL), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) slid 1 per cent to 2.5 per cent intra-day.

The pressure on the companies, which are the leading domestic LPG suppliers in India, came as reports said that the three OMCs will bear the cost of the LPG cylinder price cut.  

A businessline report said that the subsidy cost absorption will be for all non-Ujjwala consumers. However, it remained unclear whether OMCs will be compensated by the government or not.

Another report by CNBC-TV18 said that OMCs currently have headroom on LPG and thus may not need compensation or subsidy support for absorbing the cost of LPG cylinder price cut. 

The move is also sentimentally negative for OMC stocks as investors fear that price cuts on petrol and diesel could be next in line ahead of the assembly and general elections. 

This will compress their marketing margins further, adding to the ongoing pressure due to a resurge in global crude oil prices. 

In October 2022, the government had given a cumulative one time grant of Rs 22,000 crore to the three PSU OMCs to compensate them for their under-recovery due to not increasing domestic LPG prices. 

Between June 2020 to June 2022, the international prices of LPG rose around 300 per cent.  But to insulate consumers from fluctuations in international prices, the cost increase was not fully passed on to consumers of domestic LPG and their prices were raised by only 72 per cent during this period, which led to significant losses for these OMCs, as per the government. 

Domestic LPG cylinders are supplied at regulated prices to consumers by IOCL, BPCL, HPCL through their subsidiaries Indane, Bharat Gas and HP Gas, respectively. 

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First Published: Aug 30 2023 | 2:50 PM IST

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