-
OMCs signal worry on pricing freedom in run-up to polls
Staterun oil marketing companies IOC, BPCL and HPCL are building a buffer to cushion uncertainty on pricing freedom of retail fuel in the run-up to the general elections.
This is evident from the record gross marketing margins — the difference between retail selling prices and refinery transfer prices after deducting dealer commission and taxes — on petrol and diesel hitting Rs 8.2 by end-December 2018, Kotak Institutional Equities said.
Typically, gross marketing margins are in the range of Rs 1.5-2.5 on the normalised level and marketing divisions of OMC’s account for 60-70 per cent of total operating profit.
Interestingly, OMCs have removed refinery transfer price from price build-up of petrol and diesel, disabling them from determining the gross marketing margins on a regular basis.
The record marketing margins of the companies show that a drop in crude prices has been absorbed, though the only partial benefit of this has been passed on to the consumer. Indian crude basket dropped 28 percent from the October 4 high of $85.1 per barrel, while the fuel prices were slashed by 18 percent in the same time period.
Consequently, the gross marketing margin inched to Rs 8.2 per litre from nearly Rs 1litre at the beginning of October 2018.
OMC stocks also suffered after the government asked the companies to absorb approximately Rs 1 per litre hike in prices by lowering their marketing margins.
OMC stocks were downgraded by brokerages after the cut in marketing margins, seen as price intervention. However, the surge in gross marketing margins boosted investor confidence and average price to book of OMCs improved to 1.65 times from 1.87 times before marketing margin cut.
OMCs signal worry on pricing freedom in run-up to polls Historically, prices of retail fuel remain unchanged before key state elections. Oil marketing companies are ramping up inventory to cushion static prices in case crude oil prices turn volatile.Iran’s crude import waiver will expire in May 2019 and the largest Opec exporter Saudi Arabia has reduced its export by 8 lakh barrels.
Share This
