The rising crude prices continue to drive under-recoveries on petrol, diesel, and LPG products, according to analysts. With the estimated annualised under-recovery on petrol, diesel, and LPG at ₹3.2 lakh crore, analysts estimate massive losses in the September quarter for the three OMCs.
“Though we expect under-recovery to be temporary, the losses for September 2022 quarter would be ₹80,000 crore, too large to manage,” said Varatharajan S, analyst at Antique. “We cut target price building in debt to fund losses and tweak in target multiple by 1.0x to 4.5x for
, by 0.5x to 5.0x to IOCL, and 5.5x for BPCL, cutting target price by 36%, 13%, 16% for HPCL, BPCL, respectively.”
OMCs are estimated to be generating losses of ₹8.8 per litre on petrol and ₹12.9 per litre on diesel at prevailing benchmark prices. has seen a forward EPS cut by 30% in the last there months, while ‘s forward EPS saw a decline of 5.5%.
WTI Crude oil prices have rallied 50% since January 1 from $76 per barrel to touch $115 per barrel. While oil prices are expected to stay at these high levels in the near term, they are likely to correct in the next 3-4 months unless Russian sanctions trigger a retaliation.
Diesel and petrol marketing margins stand at ₹1.5 and ₹10 per litre, while LPG under-recovery is at ₹175 per cylinder. “Under recoveries are mounting for the PSU oil marketing majors, and their June 2022 quarter results will show huge losses,” said VK Vijayakumar, chief investment strategist at
.
“The market has partially discounted this fact with stocks declining more than 25% from their 52week highs. Their prospects look dim for the near-term.”
While Indian Oil share prices corrected 24% from their 52-week high, that of HPCL and BPCL have plunged 40% and 34%, respectively.
Gross refining margins (GRMs) are sustained at very high levels of about $22 per barrel due to continued low global inventories, lower Chinese export quota, strong product demand, and lower Russian and Chinese refining thruput. However, analysts believe GRMs may not sustain as Chinese teapots, and US refiners have increased run rates.
According to Avishek Datta, an analyst at Prabhudas Lilladher, OMC stocks are likely to underperform in the near term due to high marketing losses. “However, part of losses will be recouped by high refining margins,” he added.
