Indian Oil Q1 net profit soars to Rs 13,750 cr as marketing margins improve

This despite a decline in revenue from petroleum and petrochemicals operations leading to lower total revenue compared to Q1 FY23

In the first quarter of FY24 (April-June), public sector oil marketing company Indian Oil Corporation Ltd (IOCL) saw a remarkable turnaround as its net profit soared to Rs 13,750 crore, bouncing back from a loss of Rs 1,992.5 crore in the corresponding period last year. 

Sequentially, the net profit exhibited a 36 per cent increase from Rs 10,058 crore recorded in Q4 FY23. The significant rise in sequential profit is largely attributed to improved auto-fuel marketing margins and diminished crude costs.

In spite of this, the company's revenue from operations dwindled by 12 per cent to Rs 2.21 trillion when compared to Q4 FY23, constituting a 2.36 per cent quarter-on-quarter (QoQ) downturn.

This drop in revenue is primarily attributed to lower earnings across all major sectors. Specifically, the revenue from petroleum products dipped 13 per cent to Rs 2.1 trillion in Q1 FY24, down from Rs 2.42 trillion the preceding year. Likewise, sales from the petrochemicals business experienced a marginal 3 per cent fall, down to Rs 6,728 crore from Rs 6,948 crore in Q1 FY23.

In contrast, the quarter under review saw a 2.6 per cent increase in revenue from other business activities to Rs 7,840 crore, up from Rs 7,636 crore during the same quarter of the previous year.

Oil marketing companies (OMCs), having faced significant losses in the first half of FY23, have witnessed a steady recovery in their marketing margins over the last four months. Analysts had projected improved operational results for OMCs due to a substantial rise in the marketing gains of blended margins, which climbed to Rs 8-9 per litre of fuel sold in Q1 FY24, up from Rs 3 per litre in Q4 FY23.

This increase in margins was foreseen even amidst relatively lower Gross Refining Margins (GRM) - the revenue refiners accrue from transforming each barrel of crude oil into refined fuel products. The benchmark Singapore GRM, in Q1 FY24, averaged a lower $4.1 per barrel, a decrease from $8.2 per barrel in Q4 FY23.

In 2022, disruptions in the supply of Russian oil coupled with a decrease in petroleum product exports from China led to a reduction in the supply of refined products, prompting GRMs to skyrocket to a record high of $25.2 per barrel. Consequently, earnings for Indian refiners saw an upswing.

Nevertheless, as Moscow increased supplies to the international market in late 2022 to fund its ongoing conflict in Ukraine, GRMs experienced a swift downturn. Despite this, Indian OMCs have continued to secure oil from Russia at a discounted price.