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Oil Companies At ‘Trough Valuations’ As Price Hike Freeze Fuels Losses, Says Emkay


Valuations of India’s oil marketing companies Bharat Petroleum Corp., Indian Oil Corp. and Hindustan Petroleum Corp. are at “trough levels” as they continue to face losses owing to a freeze in price hikes amid soaring Brent crude oil price, according to Emkay Research.

“With Brent at $110 a barrel and refining cracks at $40-60 a barrel, consolidated integrated auto-fuel margins are currently hovering at negative Rs 2-3 a litre versus the normative run rate of Rs 8-9 a litre,” the research firm said.

The prices of petrol and diesel have not been increased since April 6. Before that, prices were hiked by 80 paise around 14 times, consecutively.

This continuing price freeze without any indication is worrying, Emkay said as it has led to a rise in under-recoveries for OMCs in the first quarter of FY23.

However, looking at past instances and the magnitude of current losses, the research firm expects the government to offer some solution in the form of a resumption of price hikes and/or subsidies.

“Windfall taxes have been reported by the media earlier, though the mechanism for the same and UK-type capex-based incentives would require careful deliberations,” Emkay said. “Our checks with PSU refiners as well as experts indicate incremental Russian crude purchases, which, however, are not big enough currently to visibly offset under-recoveries.”

Emaky said though G2G discussions may be underway, but any positive results are difficult to ascertain.





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