OMCs Margins on Petrol and Diesel increased

In the latest oil price revision, the government has increased the OMCs margins on Petrol and Diesel. It raised the petrol margin by Re0.32 per liter to Rs4 a liter for Oil Marketing Companies (OMCs).

 As far as diesel is concerned, our sources suggest that the margin on diesel is also increased by Rs1.52 per liter as its official notice is not available on the OGRA website, Sherman Research said.

This is a positive development for OMCs as their retail fuel earnings will improve. However, the current hike in margin is lower than the expectations as OMCs demanded a rise of Rs2.32 per liter each for petrol and diesel.ECC approves Rs 6 per liter increase in OMCs’ Margins

Moreover, the government has also increased Inland Freight Equalization Margin (IFEM) on both petrol and diesel to Rs6.7 and Rs1.9 per liter.

This is also positive for their cash flows since their distribution cost increased significantly after rising fuel prices over the last few months.

Based on our estimates, a hike in OMC margin will improve annualized recurring earnings by a maximum (assuming normal corporate tax) of Rs12/share, Rs10/share, Re0.45/share, and Rs6.5/share for PSO, APL, HASCOL, and SHEL.

However, the impact may be diluted if a particular OMC is subject to turnover tax after incurring inventory losses due to declining oil prices.

We maintain a ‘Market-Weight’ stance on OMCs. The rise in OMC margin is positive in long term, however, in the short-term OMCs are exposed to declining oil prices which pose a risk of significant inventory losses in the ongoing quarter, Sherman said in a report.