- OMCs anticipate robust Q4FY24 profits, driven by strong YoY growth.
- Sequential rise expected in net profits despite inventory losses.
- Analysts foresee sustained earnings improvement, citing strategic investments.
- Combined net profit for OMCs in Oct-Dec quarter significantly up YoY.
- Sales volume growth witnessed domestically and in exports, particularly by BPCL.
- Challenges persist in refining margins, impacting revenue from operations.
- Geopolitical tensions in Red Sea pose potential risks to freight rates and operations.
Introduction:
Analysts expect oil marketing companies (OMCs) to report strong year-on-year (YoY) rise in net profits for the fourth quarter of fiscal year 2024 (Q4FY24). Profits are also expected to grow sequentially, reflecting strong market trends and operational improvements.
Strong year-over-year growth:
State-owned OMCs such as Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation reported significant YoY growth in consolidated net earnings for the quarter ended December. This growth is mostly due to strong marketing margins. Despite this good trend, profit after tax (PAT) decreased sequentially across all three companies due to inventory losses that reduced gross refining margins.
Optimistic Outlook for Q4 FY24:
Analysts predict that OMCs’ net earnings will rise year on year in Q4FY24, with further sequential improvement expected. Forecasts suggest that inventory losses will be reduced, resulting in increased profitability throughout this period.
Financial Performance:
The three OMCs reported a consolidated net profit of Rs 13,119.11 crore for the October-December quarter, a considerable increase from Rs 3,081.55 crore in the same period last year. This reflects a significant improvement in financial performance.
Analyst’s Perspective:
Analysts at ICICI Securities expect HPCL’s earnings to rise steadily during fiscal years 2024 and 2026. They attribute their upbeat view to solid margins, strategic investments aimed at increasing downstream company scale and complexity, diverse revenue streams aligned with margin expansion, and enhanced leverage.
Sales Volume Growth:
In the third quarter, OMCs saw an increase in sales volume, both local and export. BPCL had the greatest sales and export volumes, suggesting an upward trend in market demand and operational efficiency.
Challenges of Refining Margins:
Despite generating profits in Q3, OMCs struggled to improve margins, with IOCL and BPCL reporting a decrease in revenue from operations. This reduction is due to lower gross refining margins, which reflect market dynamics and operational expenses.
The Impact of Red Sea Tensions:
While OMCs have ensured the security of their oil shipments amidst rising tensions in the Red Sea, concerns about freight prices remain. The continued situation may have an impact on operating costs and financial performance in the coming fiscal year.
In Q4FY24, OMCs are expected to expand their net profits through strategic initiatives and market dynamics, indicating a positive outlook. However, difficulties such as refining margins and geopolitical tensions highlight the importance of proactive management and strategic foresight in managing the oil industry’s ever-changing terrain.