Operating profits of OMCs to surge 50 pc due to stronger marketing margins

New Delhi, Nov 21 Oil marketing companies are set to see over 50 per cent rise in operating profit to $18‑20 per barrel in this fiscal year, up from $12 in the last fiscal, a report said on Friday.

The rise in operating profit will be driven by stronger marketing margin on account of stable retail fuel prices and favourable crude oil dynamics, the report from ratings agency Crisil Ratings said.

The boost from marketing margins on petrol, diesel, and other petroleum products sold is expected to more than offset a moderation in refining margins as global demand for fossil fuels softened amid the global energy transition to cleaner fuels.

The resultant healthy accruals will support capital expenditure (capex) plans of OMCs, strengthening their credit metrics.

Analysts projected crude prices to soften to $65‑67 per barrel this fiscal, with gross refining margin at $4‑6 per barrel.

"Amid this, unchanged retail fuel prices will boost marketing margin to $14 per barrel (Rs 8 per litre), resulting in overall margin improving more than 50 per cent to $18-20 per barrel,” said Anuj Sethi, Senior Director at Crisil Ratings.

The higher overall return will drive up cumulative cash accrual to Rs 75,000-80,000 crore this fiscal compared to Rs 55,000 crore in the last fiscal.

This development will support the Rs 90,000 crore capex plan of OMCs, largely towards brownfield capacity expansion, the report said.

About 80 per cent of the budgeted capex is directed towards addressing domestic demand for petroleum and petrochemical products, while the remainder is earmarked for product pipelines, marketing infrastructure, and green-energy initiatives.

The ratio of debt to earnings before interest, tax, depreciation, and amortisation (EBITDA) for OMCs is expected to improve to 2.2 times this fiscal from 3.6 times last fiscal, the report noted.

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