According to a report by Crisil, Indian oil marketing companies (OMCs) are expected to post a record pre-tax profit of at least US$ 12.19 billion (Rs. 1 lakh crore) in the current fiscal year (FY24).
It was informed in a note, the operating profit for OMCs may increase to US$ 12.19 billion (Rs. 1 lakh crore) this fiscal year, up from an average of US$ 7.31 billion (Rs. 60,000 crore) between fiscal years 2017 and 2022.
The move, according to the report, comes with higher retail prices in the domestic market and stable but noticeably low crude prices overseas.
According to the report based on the three state-run oil companies, increased profitability will help in improving the companies’ credit metrics, which have significantly deteriorated over the past few fiscal years due to muted profitability and significant capital spending.
The oil companies make money from two businesses: refining, where they earn a gross refining margin, which is the value of refined products at the refinery gate minus the cost of crude; and marketing through retail pumps, where they earn a margin on refined products.
According to Mr. Naveen Vaidyanathan, “Marketing margins could veer to an operating profit of Rs. 5-7 per litre, while gross refining margins may moderate to US$ 6-8 per barrel as global demand-supply imbalance eases if crude averages US$ 80 per barrel and no cut in retail prices.”
Since oil companies have significantly increased their capex to US$ 40.23 billion (Rs. 3.3 lakh crore) to build capacity in downstream refining and petrochemicals, product pipelines, and marketing infrastructure between fiscal years 2017 and 2023, a sharp increase in operating profit is essential. Their estimated capex for this fiscal year is US$ 6.58 billion (Rs. 54,000 crore).
