IndianOil posts multifold growth in Q1, net profit at ₹14,735 crore beats estimates

• This profit growth of Indian Oil comes on the back of a spectacular recovery in operating margins that went up to 8.6%.
• As crude prices fell, the margins of the oil marketing major rose as selling prices remained the same.
• Its core gross refining margin for the quarter came in at $9.05 per barrel.
  

India’s largest oil marketing company Indian Oil posted a multifold rise in consolidated net profit on Friday. The first quarter reading of ₹14,735 crore, as compared to ₹882.9 crore posted in the same quarter last year, largely beat analyst expectations.

This profit growth comes on the back of a spectacular recovery in operating margins that went up to 8.6% for the quarter, as compared to -0.59% posted in the same quarter last year. The falling crude prices have come as a boon for all the Indian PSU oil marketing companies as their margins have improved from the negative territory in the same period last year.

“The average gross refining margin (GRM) for the period April- June 2023 is $8.34 per barrel. The core GRM or the current price GRM for Q1 after offsetting inventory loss/ gain comes to $9.05 per barrel,” the company said.

GRM is a way to calculate economics of oil refining and is the difference between crude oil price and total value of petroleum products produced by the refinery.

IOC’s consolidated income from operations fell by 11.7% to ₹2.26 lakh crore as compared to ₹2.56 lakh crore in the first quarter of FY23.

Falling crude & improving margins

Brent crude oil prices have fallen 17% to average around $85 per barrel since October 2022, compared with an average price of $105/bbl for the six months ended 30 September 2022. The profitability of the oil marketing companies (OMCs) has increased as retail selling prices of gasoline and gasoil have remained unchanged during the period, says Moody’s.

Indian refiners have been purchasing more of Russian crude oil, that’s trading at a discount to Brent crude, which has benefitted them. Before the conflict, Russian crude accounted for less than 2% of the total crude oil consumption for the Indian refiners, but this has since increased to around 15%-20%. Moody's expects this trend to continue over the next 12-18 months.

What lies ahead

The rating agency has affirmed its ratings to the credit issuances of all the PSU oil marketing companies — IOC, HPCL and BPCL.

"The rating affirmation reflects our views that the operating performance of the state-owned refining and marketing companies will continue to improve as lower crude oil prices will reduce marketing losses and moderate working capital requirements," says Sweta Patodia, a Moody's Assistant VP and analyst.

Patodia also says that they expect the government to compensate the oil marketing companies for their past losses. On February 1, the Indian government allocated $3.7 billion as capital support for the oil marketing sector.