The Covid-19 demand suppression in early part of the year is likely to abate for oil marketing companies, now with state-run companies — IOC, HPCL and BPCL making a strong beginning to FY21 returning high levels of earnings per share between 37 and 266 per cent in three months, ICICI Securities has said in a report.
The report on refining and marketing has said that the companies shares would be flying on stock exchanges on the back of record auto fuel marketing margin, inventory gain and in case of BPCL and HPCL, surge in GRM (gross refining margin) on a low base.
Net auto fuel marketing margin (on sale of petrol and diesel) is estimated at Rs 6.1 per litre in Q1FY21 and Rs 2 per litre in Q2FY21. The higher margin is on account of upwards revision of fuel prices that started on June 7 and continued for 22 continuous days raising petrol and diesel prices by about Rs 9.17 and 11.39 per litre respectively.
According to the brokerage report, in FY21 margin may be higher than earlier estimate of Rs 2.5 litre. This would provide higher earnings for the companies as auto fuel sales is a major component of revenue for OMCs.
The main earning driver for OMCs is not only higher margins but also inventory gain that they will make this year. In Q1 the inventory gains for companies are estimated at Rs 550-850 crore against loss or smaller gain in Q1FY20. BPCL and HPCL’s GRM is estimated to be up between two and nine times YoY at $5.9-6.9 per barrel boosted by discounts on crude ($3.4-3.6/bbl) but that of IOC at $4.3/bbl to be down 9 per cent YoY.
OMCs’ Q1 GRM is estimated at $4.3-6.9/bbl including gain from crude at discount to Dubai of $3.4-3.6/bbl. However, GRM in Q2 is weak at $3.0-3.8/bbl (including inventory gain of $0.7-0.8/bbl) due to shrinking of crude discounts. Core GRM may be weak in Q2 and FY21, but that including inventory gain would be higher, the ICICI Securities said.
OMCs’ FY21 product inventory gain is estimated at Rs 1100-2300 crore.