Indian oil marketing companies (OMCs) are projected to achieve a remarkable pre-tax profit of at least US$ 12.19 billion (Rs. 1 lakh crore) during the current fiscal year (FY24), as per a Crisil report.
The report indicates that the operating profit for OMCs is expected to rise to US$ 12.19 billion (Rs. 1 lakh crore) this fiscal year, a significant increase compared to the average of US$ 7.31 billion (Rs. 60,000 crore) recorded between fiscal years 2017 and 2022. This surge in profitability is attributed to higher retail prices in the domestic market and the stable, yet relatively low, crude prices in the international market.
The report, which focuses on three state-run oil companies, highlights that the improved profitability will positively impact the companies’ credit metrics. The credit metrics have seen a decline in the past few fiscal years due to subdued profitability and substantial capital expenditures.
Oil companies generate revenue from two main businesses: refining, where they earn a gross refining margin based on the value of refined products at the refinery gate minus the crude cost, and marketing through retail pumps, where they earn a margin on refined products.
According to , the expected marketing margins could lead to an operating profit of Rs. 5-7 per litre, while gross refining margins may moderate to US$ 6-8 per barrel, assuming crude prices average at US$ 80 per barrel and retail prices remain stable.
The oil companies have significantly increased their capital expenditures to US$ 40.23 billion (Rs. 3.3 lakh crore) for expanding downstream refining and petrochemical capacities, product pipelines, and marketing infrastructure between fiscal years 2017 and 2023. This increase in operating profit is seen as essential to support their estimated capital expenditure of US$ 6.58 billion (Rs. 54,000 crore) for this fiscal year.
