The droop in worldwide crude oil costs is predicted to prune the working capital requirement of oil marketing companies (OMCs) in keeping with the declining worth of inventories and receivables.
A examine by CARE Rankings forecasts that decrease crude oil costs are slated to result in decrease gross below recoveries (GURs) in the direction of liquefied petroleum gasoline (LPG) and superior kerosene oil (SKO) throughout FY21. Already, GUR has dropped considerably from Rs 9266 crore in Q1 to Rs 4582 crore on the finish of Q3 in FY20.
The mixed debt degree of OMCs within the public sector stood at Rs 1.42 trillion (as on March 31, 2020), an increase of 39 per cent over the earlier yr. The debt burden for OMCs is predicted to ease throughout H1 (or April-September) of this fiscal, leading to improved liquidity place.
In keeping with CARE Rankings, the affect of a fall in crude oil price owing to the coronavirus (Covid-19) pandemic on the home downstream sector wouldn’t be as extreme as it’s on the upstream sector. The profitability of OMCs might be impacted adversely by their refining enterprise, which is predicted to be offset to a sure extent by larger margins from their advertising enterprise.
“We additionally consider that with decrease working capital wants and decrease GRUs, the debt ranges and curiosity burden ought to come down for the OMCs thus bettering the liquidity. We consider the credit score profile of the OMCs to stay sturdy in close to to medium time period with larger income, decrease debt, and higher liquidity profile. Moreover, given their strategic significance to home oil & gasoline coverage and easy accessibility to capital, their credit score profile is predicted to stay sturdy,” the report added.
A pointy fall in crude oil costs is mostly not handed instantly to the purchasers and thus in a cheaper price situation, the advertising margins have a tendency to stay larger. CARE Rankings believes that the OMCs will witness an enchancment of their advertising margin for the following couple of quarters pushed by decrease RTP (Refinery Switch Worth) and no main value lower within the remaining product pricing.
As there was a big decline in crude costs, in addition to demand for petroleum merchandise, the RTP is predicted to return down, whereas the transportation and storage fees are anticipated to stay at related ranges. The advance within the advertising margins has been marred marginally on account of the latest excise responsibility hike on petrol by Rs three per litre and Rs 1 per litre on diesel, which has been absorbed by OMCs from the cushion created out of decreased RTP.