Increase in prices, changes in duty structure too little and late; uncertainty on subsidy likely to dent books.
Despite the recent price rises and duty changes, government-controlled oil marketing companies (OMCs) are likely to report losses for the financial year’ s first quarter, ending June 30. While the rise was too late in the quarter for making any difference to the health of the companies, lack of government subsidy support has also impacted their top line.
Analysts, however, expect Mukesh Ambani’s Reliance Industries Ltd to report better profit.
"On the back of a strong macro environment, RIL is likely to report a better set of numbers during the quarter. Benchmark Singapore GRMs (gross refining margins) have averaged $8.8 a barrel. The same should auger well for RIL to a limited extent, on account of the fact that strength in the Singapore margins during the quarter was largely a function of improved gasoline cracks, whereas the predominant portion of RIL’s product slate is composed of middle distillates. We expect GRMs of $10.3 per barrel for RIL during the quarter," said financial consultancy Prabhudas Lilladher in a report. RIL posted gross refining margins of $7.3 per barrel during the first quarter of financial year 2011.
The state-run OMCs, however, said the quarter would be dominated by under-recovery numbers. The increase in crude oil prices, coupled with increase in the product cracks of diesel and petrol, has resulted in significant jump in the under-recoveries of the public sector oil marketing companies. Under-recovery for the April-June quarter is Rs 45,000 crore.
“The diesel price revision took place only on June 25. So, there is actually no respite for us. This quarter will be dominated by under-recovery numbers. The changes made will be reflected in the second quarter's performance,” said the chief financial officer of an OMC.
Last month, the Empowered Group of Ministers on fuel price announced a series of price hikes -- Rs 3 per litre on diesel, Rs 2 per litre on subsidised kerosene and Rs 50 per cylinder on domestic LPG. The government also announced a five per cent cut in customs duty on crude and some key products (including petrol and diesel), as well as a Rs 2.6 per litre reduction in specific excise duty on diesel.
"Gross under-recoveries on a year on year basis are expected to be higher in the first quarter of fiscal year 2011-12. Under-recoveries on petrol will not contribute to the total gross under-recoveries, as the prices have been de-regulated. However, losses on diesel, LPG and kerosene have increased considerably, causing total under-recoveries to increase. Uncertainty over the subsidy sharing pattern continues, with the government yet to decide on a particular formula," India Infoline said in its sector analysis report.
During the January-March quarter of 2011, IndianOil posted gross refining margins of $7.85 per barrel. Bharat Petroleum Corporation posted a GRM of $4.47 per barrel and Hindustan Petroleum Corporation posted a GRM of $5.30 per barrel.
Indian crude prices averaged $112.9 per barrel during the first quarter of this financial year, against $102.1 per barrel during the fourth quarter of 2010-11.
From the upstream companies, analysts expect Cairn India's profit during the quarter to rise 10-fold on higher crude production and net oil price realisation. However, Oil and Natural Gas Corporation's crude oil and natural gas sales volumes are predicted to be mute on a quarter on quarter basis at 5.8 million tonnes of oil and 5.75 billion cubic metres of gas, respectively, during the quarter.
"On the back of our provisional estimate of 33 per cent subsidy share for upstream firms and, consequently, 82 per cent of the same to ONGC, we expect the net realisation for the quarter to stand at $51.3/bbl against $48.05 per bbl in the first quarter of last financial year," said Prabhudas Lilladher.
According to analysts, GAIL may report a weaker performance for the quarter on the back of subdued transmission volumes and increase in the subsidy burden during the quarter. Analysts expects GAIL to bear a subsidy of Rs 1,000 crore during the quarter.
