State-run firms’ robust H1 profits prompt review of Budget plan.
Capital infusion in state-run oil marketing companies (OMCs) may turn out to be much less than the budgete estimate (BE) of Rs 35,000 crore in the current financial year. This is because robust profits in the first half on the back of subdued crude oil prices enabled these firms to partly offset the losses incurred in the previous quarters, sources told FE.
“There is no clarity as of now on how much capital will be infused in the OMCs, but it will be only a part (of the budget estimate),” an official said.
A final decision, however, might also factor in the likely cut in retail petrol and diesel prices by OMCs ahead of general elections in April-May, sources said.
The state-run fuel retailers are widely expected resume daily revision of petrol and diesel prices over the next weeks. Calibrated price cuts might begin once volatility in global oil prices reduces , and Indian basket of crude settles in the range of $80-85/barrel, analysts feel.
In the Budget 2023-24 presented on February 1, the government announced Rs 30,000 crore equity investment plan for the three OMCs — IOC, BPCL and HPCL — towards energy transition and net-zero objectives.
The change in the plan is given the improved profitability of the firms in H1 as well expected robust performance in H2. Also, there are concerns about the shareholders having to cope with a fall in earnings per share (EPS) as a result of the budgeted equity infusion plan.
Indian Oil Corporation, the biggest state-run OMC, reported a net profit of Rs 26,717 crore in H1FY24 compared with Rs 611 crore in the year-ago period. For H1 FY24, BPCL reported a net profit of Rs 19,052 crore as against a net loss of Rs 6,567 crore recorded in H1 FY23. HPCL also posted strong results.
If oil prices stabilise at $80-85/bb1, analysts expect strong core earnings to continue in H2 as well. From April to July, the Indian basket of crude remained around $75-80/bbl before rising to $90.08/bbl in October. However, it has now climbed down to $76/bbl so far in December.
Following the Budget announcement, the BPCL Board in June approved an Rs 18,000 crore rights issue to shareholders, entailing at least Rs 9,500 crore capital infusion by the Centre for its 52.98% stake. In July, the IOC board approved a rights issue for raising Rs 22,000 crore, which requires the government to infuse at least Rs 11,330 crore for its 51.5% stake.
The remaining amount of capital infusion by the government was to go to HPCL, a subsidiary of state-run upstream major ONGC.
Retail fuel prices in India have been frozen since May 2022. However, this price control has been during both rising and falling crude prices, allowing OMCs to recoup losses during periods of high crude prices. With most of the losses of FY23 recouped during FY24, a price cut is expected by end-Q4.
Due Russia-Ukraine war, the Indian basket of crude prices shot up by an average of 18% in FY23 to $93.15/barrel compared with $79.18/barrel in FY22.
Source:financialexpress.com