After registering healthy refining and marketing margins in the third quarter of financial year 2024-25, state-owned oil marketing companies stare at a potential decline in their Ebitda and net profit in the next quarter on likely softer gross refining margins, according to analysts.
“Overall, gross refining margins are expected to remain soft in FY26 and FY27 as global oil demand remains below the historical average and global refining capacity expansion remains robust,” Motilal Oswal said in its report.
As per the brokerage, Indian Oil Corp has the highest refining exposure among all the OMCs, resulting in the highest adverse impact. “Additionally, if crude prices decline in the fourth quarter, IOCL could incur the highest refining inventory losses among OMCs,” said the brokerage report.
Motilal Oswal estimates a 31% decline in HPCL’s Ebitda and 51% fall in its profit after tax in Q4FY25 from last year. For IOCL, the firm expects net sales, Ebitda, and PAT to decline by 2%, 43%, and 81%, respectively from the same period last year.
“IOCL has the smallest advantage to marketing among OMCs and, hence, the lowest relative benefit. Further, marketing inventory losses are expected in Q4 if refining gross refining margins remain low,” it said.
Analysts expect a marketing margin of Rs 3.3 per litre for both motor spirit and high speed diesel in FY26-27, while the current MS and HSD marketing margins are Rs 4.7 per litre and Rs 9.6 per litre, respectively.
Nomura has also cut FY26-27 Ebitda estimates by 4-5% for Bharat Petroleum Corp on factoring modestly lower refining margins of $7 per barrel.
However, analysts do note a favorable construct for the OMCs, given a muted outlook for crude prices, which will drive significantly higher marketing margins and a favorable refining construct given demand outpacing supply by 0.5 million barrels per day.
Additionally, the industry players are expecting the government to provide subsidies to OMCs to compensate the under recoveries made on the sale of LPG during the quarter under review.
Moreover, post the latest US sanctions on Russia, the country’s OMCs have started diversifying their crude supplies from other countries. Analysts believe that if OMCs’ Russian crude utilisation becomes nil, they may encounter some impact on the gross refining margins given the non-availability of discounted Russian crude oil.
» Read More
