Oil Marketing Companies Face Profit Decline
Impact of Russian Crude Discounts
Oil marketing companies (OMCs) in India are expected to see a decrease in operating profit to USD 12-14 per barrel in fiscal 2025, down from USD 20 per barrel last fiscal, according to Crisil Ratings. This decline is attributed to discounts on Russian crude oil, softening diesel spreads, and inventory losses.
Stable Retail Fuel Prices
Despite the drop, stable retail fuel prices amid volatile oil prices will help support overall returns. The operating profit will still be higher than the USD 9-11 per barrel average over the past decade through fiscal 2024, partially supporting OMCs’ capital expenditure needs.
Refining and Marketing Channels
OMCs earn through refining and marketing. In refining, they earn a gross refining margin (GRM), which is the difference between the value of refined products and the cost of crude oil. In marketing, they earn a margin on petrol, diesel, and other products sold.
Future Projections
Aditya Jhaver, Director at CRISIL Ratings, noted that GRMs are expected to average USD 3-5 per barrel, with diesel spreads stabilizing. Discounts on Russian crude have reduced, and oil prices are projected to average USD 75 per barrel in the second half of the fiscal.
Capital Expenditure and Debt
OMCs plan a capex of Rs 90,000 crore, with 80% allocated for domestic demand and the rest for infrastructure and green energy. Joanne Gonsalves, Associate Director at CRISIL Ratings, mentioned that the debt-to-Ebitda ratio is expected to increase, but the sector’s credit profiles will remain supported by its strategic importance and government ownership.
Doubts Revealed
Oil Marketing Companies -: These are companies that sell and distribute oil and petroleum products like petrol and diesel. In India, examples include Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum.
Russian Crude Discounts -: This means that Russia is selling its crude oil at a lower price than usual. Crude oil is the raw form of oil that is extracted from the ground and needs to be refined to make products like petrol.
Operating Profit -: This is the money a company makes from its main business activities, like selling oil, after subtracting the costs of running the business.
Fiscal 2025 -: This refers to the financial year 2025, which is a period used for accounting and budgeting. In India, it usually starts on April 1 and ends on March 31 of the next year.
Capital Expenditure -: This is the money that companies spend on buying or improving their buildings, equipment, or infrastructure to help their business grow.
Debt-to-Ebitda Ratio -: This is a financial measure that shows how much debt a company has compared to its earnings before interest, taxes, depreciation, and amortization. It helps to understand how easily a company can pay back its debts.
Credit Profiles -: This refers to the financial health and creditworthiness of a company, which affects its ability to borrow money from banks or investors.
Government Backing -: This means that the government supports these companies, which can include financial help or policies that make it easier for them to operate.
