NEW DELHI: The weak refining margins that weighed on the state-owned oil marketing companies’ (OMCs) profitability in Q4FY24 is likely to persist and result in subdued earnings for the country’s downstream petroleum sector in the first quarter of 2024-25.
“We expect average gross refining margins of PSU refiners – (IOCL, BPCL, HPCL, CPCL and MRPL) – to dip to $6.8 per barrel ($4.0-$8.7/bbl) in Q1FY25 from $9.4/bbl in Q4FY24 and $9.3/bbl in Q1FY24,” said Elara Capital in its quarterly preview.
The peak witnessed in the global oil prices in the beginning of FY25 is likely to lead to muted refining performance of OMCs in Q1FY25.
The brokerage expects companies in the oil and gas sector to post a decline of 24% in EBITDA (earnings before interest, taxes, depreciation, and amortization) on year and 9% on quarter in the first quarter of the current fiscal.
Kotak Institutional Equities noted that with a sharp on quarter decline in key product cracks and lower discounts on Russian crude oil, the reported gross refining margins for state-owned OMCs is likely to moderate further in the quarter under review. Additionally, due to the announced cut of Rs 2 per litre in the prices of retail auto fuels in March, the OMCs have registered weak marketing margins that would have led to poor EBITDA in Q1FY25.
“Further, with the full impact of Rs2/liter price cut in March and higher Brent prices, marketing margins on auto fuels were also weaker QoQ. We expect ~35-43% QoQ decline in EBITDA for the three OMCs,” Kotak Institutional Equities said.
Analysts at Elara Capital expect OMC’s retail gross margin on diesel to see a decline of Rs 5.3 per liter from last year and Rs 0.1 per liter sequentially to Rs 4.4 per liter while gasoline margin may drop Rs 5.5/liter on year and Rs 2.9/liter on quarter to Rs 5.1/liter.
“We expect an average crude inventory gain of $0.3/bbl vs a gain of $0.1/bbl in Q4FY24 in Q1FY25E,” the firm said.
While the first quarter of the current fiscal may see a blip, FY25-FY26 may see sustained earnings improvement due to targeted investments in improving scale and complexity of downstream business by the OMCs, their diversification, and a likely improvement in margins, according to analysts.
The country’s upstream sector companies too are expected to register a fall in their EBITDA as the benefits accrued from a marginal increase in the crude oil prices is expected to be offset by an increase in the windfall tax by the government.
“With both oil and gas prices capped, we expect the benefits of ~2% QoQ higher Brent prices to be offset by an increase in windfall tax,” said Kotak Institutional Equities. “ONGC’s EBITDA would likely decline ~6% on quarter on lower net oil realization and also lower oil production.”
Analysts at Elara Capital also expect ONGC’s EBITDA to fall 20% on year in Q1FY25 due to lower oil and gas production and higher windfall taxes.
The firm estimates upstream public sector companies’ crude oil realization (net of windfall taxes) at $71 per barrel, down 5% from last year and 4% from the previous quarter. “Oil India’s crude oil and natural gas production is likely to witness growth of 6% and 9% on year, respectively.”
Source: The Financial Express
