Marketers to pay less, crude price a worry

RUPEE RISE: IMPACT ANALYSIS

The country's oil marketing companies welcomed the relief that the appreciation of the rupee to Rs 39.95 per dollar brought but the cheer was clouded by worries over continuously rising crude oil prices.

Though these companies will have to pay less in dollar terms for the crude oil they buy in the international market, the basket of crude oil that Indian refiners buy touched a new all-time high of $76.13 a barrel on Wednesday, the latest day for which data are available.

Oil exploration and production companies, however, would see an erosion in revenues, though "we have a natural hedge against the rising rupee as we will have to pay less for sharing the burden of under-recoveries by the marketing companies," said an official with Oil and Natural Gas Corporation (ONGC), the country's largest exploration company. Every one rupee rise against the dollar erodes ONGC's revenue by Rs 850 crore.

"Oil marketing companies have been going through tough times as crude oil prices have gone through the roof. The rupee touching the 40 mark against the dollar will help them only a little in the second quarter as only 10 days are left for the quarter to end," said a Delhi-based analyst.

"However, on a year-on-year basis, the quarterly results should be positive as the rupee has averaged around 41 this quarter, compared with around 45 in the second quarter of last year," he added.

The shares of three goverment oil marketing companies "" Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) "" outperformed the Sensex today. While the Sensex rose 0.15 per cent, IOC rose 2.56 per cent, BPCL 3.54 per cent and HPCL 5.04 per cent. The ONGC stock rose 0.43 per cent, in line with the Sensex.

The government-owned oil marketing companies have seen under-recoveries rise 11 per cent to Rs 200 crore a day from Rs 180 crore a day at the end of August as the price of the Indian basket of crude oil has risen 7 per cent since the beginning of this month.

"A strong rupee will help our bottom line, but the burden of under-recoveries has been huge this quarter," said a senior official with IOC, the country's largest marketer of petroleum products.

A 1 per cent rise in the value of the rupee translates into a 20 paise per litre impact on the retail price of auto fuels (petrol and diesel), analysts say.

IOC posted a profit in the first quarter of the current financial year, primarily due to the strong rupee, which added Rs 726 crore to the company's bottom line. In the same quarter of the previous financial year, the company made a loss of Rs 318 crore as a result of the change in the value of the rupee against the dollar.

Analysts say if the rupee averages 41 to a dollar for the rest of this calendar year, the oil marketing companies will add Rs 6,500 crore to their operating profit.

Since IOC, along with BPCL and HPCL, is an importer of crude oil, for which it pays in dollars, the stronger the rupee against the dollar, the lesser the company will pay in rupee terms.