No relief for consumers on fuel prices while oil cos jack up margins

Topics Fuel prices | petrol | Diesel prices

Photo: Reuters

Even as consumers continue to pay higher prices auto fuels petrol and diesel, country's biggest oil marketing companies are expected to reap in higher margins on sale of the two products substantially improving their profitability.

As per oil sector analysts, at current retail price of petrol and diesel, OMCs are making a net marketing margin of Rs 4.78 per litre, much higher than levels prevailing in previous months. What more, the companies are making money on sale of petrol and diesel while keeping the retail price of the two products unchanged for over a month now, denying consumers of price cuts on fuel prices during the current difficult period.

According to a report by ICICI Securities, auto fuel net marketing margins are estimated at Rs 4.43 per litre in H1FY21. This means that even if the net margin remains lower at Rs 2,56 per litre, OMCs would achieve the target margin of Rs 3.3 per litre given by the brokerage for FY21.

"With net margin at Rs 3.28/l in Q3FY21 till date, Rs 3.78/l on November 3 and Rs 4.78/l at latest prices, it appears likely that net margins would be higher than our FY21 estimate of Rs3.3/l," ICICI Securities projected in its report on the oil sector.

What is more, OMCs are also seeing an increase in consumption of petrol and diesel as unlock of the. economy post Covid-19 related lockdown a has kicked up demand for fuel as economic activities pick up. This means that at OMCs May gain further from Increased volumes in addition higher net margin available on the products.

According to the brokerage, in September 2020, consumption of petroleum products was down just 4 per cent YoY (19 per cent in H1FY21), diesel down 6 per cent YoY (down 25 per cent YoY in H1), while petrol was up 3 per cent YoY (down 21 per cent in H1). In October 2020, petrol consumption was up yet again at 4.2 per cent YoY, even diesel was up 6.6 per cent YoY.

The report said that though weak gross refining margin (GRM) and diesel cracks are a concern for OMCs, underlying data is improving especially with inventories declining. Even in India, petrol and diesel inventories continue to fall. This augurs well for OMCs; their valuations are cheap and dividend yield high.



(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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