The government could hope to get much better valuation for its share in Bharat Petroleum Corporation (BPCL), if the current trend of low global oil prices continues well into 2020 as it will positively impact the marketing margin of the oil marketing company (OMC).
As per the market assessment By Reliance Securities, for every $1 a barrel fall in crude price, the OMCs' marketing margin is expected to improve Rs 0.45 a litre. If we factor in that since mid-January crude prices have fallen by over $25 a barrel, the OMCs gains would be manifold. But in doing direct calculation, the value of rupee also plays a big factor and it has fallen sharply, lately.
Net marketing margin on diesel stands at Rs 5.5 a litre (as on March 7), while the average for Q4FY20 till date stands at Rs 3.53 a litre up 71 per cent QoQ (Q3FY20 - Rs 2.06 a litre). The net marketing margin on petrol stands at Rs 1.83 a litre against negative margin during Q3FY20.
The brokerage firm said HPCL would be the biggest beneficiary of lower crude prices resulting in higher marketing margin for the refiner. The company's net marketing margin on petrol and diesel of Rs 1 a litre can raise its net profit by 41 per cent in FY21, while $1 a barrel change in GRM will potentially increase/decrease its net profit by 17 per cent.
Public sector oil refiner and retailer BPCL would be the second biggest beneficiary as its net profit would be impacted by 31 per cent in FY21 for every Rs 1 a litre rise in net marketing margin on petrol and diesel. Also, $1 per barrel change in GRM would increase/decrease BPCL's net profit 16 per cent, Reliance Securities said.
OMCs have also started importing more crude from Saudi Arabia after the US sanctions on Iranian exports. In 2019, Saudi Arabia remained the second biggest oil seller to India. It increased 19 per cent of overall crude purchase of India (4.6 million bpd) from 17 per cent in 2018.
The OMCs (BPCL+HPCL+IOCL) import crude oil from Saudi Arabia. In January 2019, they purchased 24 per cent of total crude from Saudi Arabia. "The OMCs could be the largest beneficiary of sharp cut in official selling price to Asian countries by Saudi Arabia," it said.