A report by Equirus Securities suggests Indian OMCs could face margin pressure if crude prices stay high without retail price hikes. It ranks HPCL as most vulnerable among majors, followed by IOCL and BPCL, due to varying business structures.
Indian oil marketing companies (OMCs) could face mounting pressure on their margins and balance sheets if crude oil prices remain elevated and retail fuel prices are not increased proportionately, according to a report by Equirus Securities. The brokerage has ranked Hindustan Petroleum Corporation Ltd (HPCL) as the most vulnerable among major OMCs, followed by Indian Oil Corporation Ltd (IOCL) and Bharat Petroleum Corporation Ltd (BPCL), in a scenario of sustained high crude prices.
“If crude remains above US$100 per barrel, with restricted retail-price increases, OMCs could face negative petrol and diesel marketing margins, higher LPG under-recoveries, higher crude-landing, freight and insurance costs, working-capital and debt accumulation, and inventory losses if crude subsequently corrects sharply,” said Maulik Patel, Head of Research, Equirus Securities.
HPCL Most Exposed
The report identifies HPCL as the most exposed among the three companies, citing its lower refining-to-marketing ratio of 51 per cent, higher dependence on purchased or imported products and the highest leverage. It noted that HPCL would be the most vulnerable if crude remains elevated while retail prices remain unchanged.
Company Assessments
IOCL, despite having stronger integration and an 80 per cent refining-to-marketing ratio, remains exposed to fuel marketing pressures, LPG under-recoveries, inventory and working-capital requirements, and expensive crude procurement. Petrochemical losses could add to the pressure, the report said.
BPCL, with a 74 per cent refining-to-marketing ratio, an 85 per cent distillate yield and comparatively stronger balance sheet, is considered relatively better placed among the major OMCs.
Impact on Upstream Companies
The report also highlighted the contrasting impact of higher crude prices on upstream companies. “ONGC and Oil India are most direct beneficiaries of higher crude realizations which has not been reflected in valuations yet,” Patel said.
The report’s assessment is based on the assumption of sustained crude prices above USD 100 per barrel and limited retail-price increases, rather than a forecast that such conditions will necessarily persist. (ANI)
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