Inventory losses, muted refining margins to weigh on OMCs financial numbers, Energy News, ET EnergyWorld

Inventory losses, muted refining margins to weigh on OMCs financial numbers, Energy News, ET EnergyWorld


Inventory losses, muted refining margins to weigh on OMCs financial numbers New Delhi: The state-owned Oil Marketing Companies (OMCs) may post weak financial results for the first quarter ended June on the back of inventory losses, muted refining margins and lower crack spreads, projections made by equity research firms show.

Benchmark Asian petrol and diesel cracks — reflecting price differential between crude and refined products — have come under pressure due to a supply glut in the Asian market. Subdued product cracks had dented Asian refiners’ margins including government-owned OMCs impacting their earnings and net profit in the previous two quarters. Inventory gains or losses occur due to the change in global crude prices during the time of buying the crude oil and refining the petroleum product.

Mukesh Ambani-led Reliance Industries’ refining and marketing segment’s performance was impacted during the June quarter due to significantly lower product cracks on a year-on-year basis, the company said in a statement.

“Both Singapore gasoline and gasoil cracks over the April-June period were weaker year-on-year by $4.60/Bbl and $2.30/Bbl, respectively, pressured by additional supply from new refineries in the region, coupled with moderating demand growth, particularly from China, with India’s growth also slowing in recent months,” S&P Global Asia Analytics told ETEnergyWorld in an e-mail response.

Indian Oil Corporation (IOC)
Indian Oil, the country’s largest fuel retailer and one of the most profitable PSUs in the country, is expected to post a 82 per cent decline in net profit at Rs 1,207 crore for the June quarter, as compared to Rs 6,831 crore posted in the corresponding quarter a year ago, Kotak Instituional Equity said in a report.

“We expect IOCL to report weak results impacted by adventitious loss of Rs 22 bn and muted refining margins, which will be partially offset by higher-than-normal (+Rs0.5/liter) blended marketing margins on auto fuels,” Kotak said.

Another equity research firm Prabhudas Lilladher estimates the fuel retailers’ net profit to slump 57.6 per cent to Rs 2,898 crore during the quarter. “IOCL earnings to be impacted by lower inventory gains. Improved marketing earnings and depreciating exchange rate provide downside support,” it said in a report.

Bharat Petroleum Corp (BPCL)
Bharat Petroleum, the country’s second-largest fuel retailer, is expected to post a 65 per cent decline in net profit at Rs 804 crore for the first quarter ended June. “We expect BPCL to report weak results impacted by adventitious loss of Rs 7.5 bn and muted refining margins, which will be partially offset by higher-than-normal (+Rs0.5/liter) blended marketing margins on auto fuels,” Kotak said.

Prabhudas Lilladher has estimated the company’s net profit to decline 37.7 per cent to Rs 1,429 crore for the first quarter ended June 2019. “BPCL earnings to decline sequentially due to inventory loss and muted GRMs. Improved marketing earnings and depreciating exchange rate provide downside support,” the brokerage said.

Hindustan Petroleum Corp (HPCL)
Hindustan Petroleum, the country’s third-largest fuel retailer is expected to post a 59.2 per cent decline in net profit at Rs 701 crore for the first quarter ended June 2019. “We expect HPCL to report weak results impacted by adventitious loss of Rs 8.5 bn and muted refining margins, which will be partially offset by higher-than-normal (+Rs0.5/liter) blended marketing margins on auto fuels,” Kotak said.

Prabhudas Lilladher has estimated the company’s net profit to drop 23.7 per cent to Rs 1,311 crore for the first quarter ended June 2019, as compared to the corresponding quarter a year ago. “HPCL earnings to decline sequentially due to inventory loss and muted GRMs. Improved marketing earnings and depreciating exchange rate provide downside support,” Lilladher said in a report.

According to S&P Global Asia Analytics, build-up of demand over the summer driving season in the Northern Hemisphere will provide some support for gasoline cracks. Also, later this year, the preparation for IMO 2020 spec is expected to enhance gasoil cracks and support gasoline cracks as well.



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