The recent decision of the government to reduce petrol and diesel excise duties by ₹1.5 , is credit negative for the three oil marketing companies (OMCs) — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation, said Moody’s.
The government had also asked the OMCS to cut the retail price of both diesel and petrol by ₹1 per litre.
The OMCs cannot fully pass on higher crude oil prices to consumers and their earnings will be negatively affected, Moody’s added.
These three OMCs account for about 95% of the country’s retail fuel sales. “In effect, the government has asked the OMCs to sell petrol and diesel at subsidised prices, for which they will not be reimbursed by the government. The price cut has come through the lowering of excise duties by ₹1.50 per litre and oil marketing companies being asked to absorb ₹1 per litre.
“We estimate the government’s decision will reduce the combined EBITDA of the three OMCs by ₹6,500 crore in fiscal 2019, which is around 9% of their total EBITDA of ₹69,200 crore in fiscal 2018,” Moody’s said in a statement.
OMCs to lose ₹3,500 cr.
CRISIL said that the fuel price cut would hit the OMCs by ₹3,500 crore in the third quarter.
“Oil marketing companies may be looking at a ₹3,500 crore blow to their operating profit this quarter, following the finance ministry’s announcement of a reduction in petrol and diesel prices by ₹2.50 per litre,” the rating agency said in a report.
Prasad Koparkar, Senior Director, CRISIL Research said, “As things stand, average gross marketing margins of the OMCs on diesel and petrol have come off from ₹3 per litre in the closing quarter of fiscal 2018 to ₹2.60 per litre in the second quarter this fiscal due to the uptrend in crude prices.”
“Given this, our calculations indicate that the Re 1 per litre blow will shave 100-130 basis points off the OMCs’ operating margins and a ₹3,000-3,500 crore decline in operating profits this quarter,” he said.