Winning Bizness Desk
Mumbai.India's two leading state-owned oil marketing companies, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), slipped into heavy losses during the June quarter as soaring crude oil prices, rising freight costs and weak fuel marketing margins weighed heavily on their financial performance. While BPCL posted a net loss of Rs 3,962 crore, HPCL reported a much steeper loss of Rs 11,526 crore. Both companies attributed the setback to elevated global crude prices and the inability to fully pass higher costs on to consumers through petrol, diesel and LPG prices.
Market pressure dents quarterly profitability
The two public sector refiners announced their quarterly results on Wednesday, highlighting the impact of global energy market volatility. BPCL's performance marked a sharp reversal from the June quarter of the previous financial year, when it had reported a profit of Rs 6,124 crore. The company had also earned a profit of Rs 3,191 crore in the March quarter.
Despite the loss, BPCL registered healthy revenue growth:
- Revenue rose to Rs 1.59 lakh crore in the June quarter.
- This was 23% higher than Rs 1.29 lakh crore a year earlier.
- Revenue also increased 18% sequentially from Rs 1.35 lakh crore in the March quarter.
Crude rally pushes operating costs higher
The companies said the surge in crude oil prices following the US-Iran conflict, which began on February 28, significantly increased their procurement costs. International crude prices reportedly climbed to nearly $120 per barrel during the period, while freight and insurance expenses also moved sharply higher.
Although input costs soared, oil marketing companies could not fully recover these expenses by increasing retail prices of petrol, diesel and LPG. The gap between rising costs and regulated consumer prices put considerable pressure on earnings, resulting in substantial quarterly losses despite higher sales revenue.
HPCL hit despite strong refining margins
HPCL also witnessed a dramatic turnaround from the previous quarter. The company had reported a net profit of Rs 4,901.5 crore in the March quarter, but slipped into a loss in the June quarter as geopolitical tensions in West Asia and weak marketing margins hurt overall profitability.
Its key financial highlights included:
- Revenue climbed 22.3% to Rs 1.41 lakh crore.
- Revenue stood at Rs 1.15 lakh crore in the previous quarter.
- Gross Refining Margin (GRM) surged to $23.80 per barrel.
- GRM had stood at $3.08 per barrel in the corresponding quarter last year.
Weak marketing margins offset refining gains
HPCL said its strong refining performance was not enough to offset weakness in the marketing business. While refining operations generated significantly better returns, margins on the sale of petroleum products remained under pressure throughout the quarter, eroding overall profitability.
The company maintained that refining alone could not compensate for subdued earnings from fuel retailing, particularly when crude prices remained elevated and retail price increases were limited.
Outlook hinges on crude prices and margins
The June-quarter results underline the challenges confronting India's oil marketing companies amid volatile global energy markets. Higher crude prices can boost refinery earnings, but they also raise procurement costs and compress profits if retail fuel prices are not adjusted accordingly.
Key factors investors will watch in the coming quarters include:
- Movement in international crude oil prices.
- Stability in the Middle East.
- Marketing margins on petrol, diesel and LPG.
- Government pricing policy and cost recovery.
- Sustainability of refining margins if crude prices remain elevated.
The financial performance of BPCL and HPCL will largely depend on how quickly global oil prices stabilise and whether marketing margins improve enough to restore profitability in the coming quarters.
