Oil marketing firms likely to hit ₹1 tn in operating profit this fiscal: Report

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₹1 trillion. This projection is in sharp contrast to average operating profit of around ₹60,000 crore recorded between fiscals 2017 and 2022, and three times higher ₹33,000 crore reported in FY23. Crisil Ratings, in its analysis of three OMCs that collectively represent the entire sector, has indicated a positive outlook for the current fiscal.

The likely resurgence in operating profit comes as a much-needed respite for the sector, which had grappled with weakened credit metrics in recent fiscals due to lacklustre profitability and substantial capital expenditure (capex). The core business model of government-owned OMCs revolves around two segments: refining and marketing. The refining segment garners revenue through gross refining margins, which is the value of refined products at the refinery gate minus the cost of crude oil used in the production process.

The marketing division, on the other hand, earns a margin from the sale of petrol, diesel, and other petroleum products primarily through retail outlets. During fiscal year 2023, the sector reported record-breaking gross refining margins averaging at $15 per barrel. This unprecedented achievement was driven by robust global demand, particularly for diesel, amid soaring prices of alternative fuels such as natural gas amid EU’s sanctions on Russian energy products.

However, the sector faced challenges as crude oil prices surged to an average of $94 per barrel during the fiscal year. Surprisingly, retail prices had remained unchanged since May 2022, resulting in substantial marketing losses amounting to ₹8 per litre. Consequently, the overall profitability of OMCs remained subdued in the last fiscal year.