Weak marketing margins drag down BPCL and HPCL Q1 earnings
New Delhi, July 24
Indian public sector oil marketing companies faced severe pressure during the first quarter of FY27 due to rising global crude oil prices, sharp depreciation of the Indian rupee, and escalating losses on liquefied petroleum gas sales.
Indian OMC's Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) recorded substantial financial losses in Q1 as depressed fuel marketing margins completely wiped out the gains from exceptionally strong refining margins, according to Nuvama reports.
According to the reports, BPCL posted a first-quarter EBITDA loss of Rs 41 billion and a net loss of Rs 40 billion. Although BPCL achieved a strong Gross Refining Margin (GRM) of USD 41.4 per barrel, up 8.5 times year-on-year, the performance was severely undercut by negative marketing margins on automotive fuels. Negative margins on diesel and petrol stood at Rs 25.2 per litre and Rs 7.7 per litre, respectively.
"BPCL's FY27 earnings shall deteriorate amid a challenging scenario due to West Asia war, rising LPG losses," Nuvama stated in its report.
"Moreover, high capex cycle to weigh on return ratios, making risk-reward unfavourable," the report added, noting that it cut FY27 and FY28 EBITDA estimates by 23 per cent and 10 per cent to factor in the Q1 performance and lower marketing margins.
At the time of reporting, BPCL stocks traded at Rs 308.25, down by Rs 1.60 or (-0.52%).
HPCL reported a similar trend, registering an EBITDA loss of Rs 161 billion and a net loss of Rs 115 billion for the same period. While HPCL recorded a robust GRM of USD 23.8 per barrel, an eight-fold increase year-on-year, its marketing segment suffered parallel losses of Rs 25.2 per litre on diesel and Rs 7.7 per litre on petrol.
"HPCL's FY27 earnings shall deteriorate on higher crude prices amid West Asia conflict," the report noted.
"Slower ramp up of major projects and elevated capex shall weigh on return ratios, rendering risk-reward unfavourable," Nuvama added, revising HPCL's FY27 and FY28 EBITDA estimates down by 30 per cent and 10 per cent.
At the time of reporting, HPCL stocks traded at Rs 373.60, down by Rs 11.55 or (-3.00%).
Elevated losses on LPG sales contributed heavily to the overall drain on both state-run refiners. BPCL accumulated Rs 158 billion in cumulative LPG losses during the quarter, while HPCL's cumulative LPG loss reached Rs 164 billion despite receiving an LPG subsidy payout of Rs 19.8 billion.
Operationally, BPCL recorded crude throughput of 10.1 million metric tonnes (mmt), down 3 per cent year-on-year, with domestic sales holding flat at 13.6 mmt. Marketing inventory gains of Rs 31.3 billion and a 67 per cent increase in other income provided minor relief against operating expenses.
HPCL achieved crude throughput of 6.5 mmt, down 1 per cent year-on-year, while domestic sales remained flat at 12.2 mmt. HPCL's losses were partially offset by a 145 per cent jump in other income alongside lower employee expenses, which fell 21 per cent year-on-year to Rs 7 billion.
— ANI
Reader Comments
Interesting to see the disconnect between refining profits and marketing losses. The GRM at BPCL of $41.4/barrel is massive—8.5x YoY—but it gets wiped out by selling fuel at a loss. As an investor, this is scary. The war in West Asia isn't going away, and with the rupee sliding, it's a double whammy. I'd stay away from these stocks for now.
We keep reading about "high capex cycles" and "unfavourable risk-reward." I'm not an expert but even I can see this pattern: OMCs lose money when global prices rise and the govt doesn't let them pass it on. But when crude falls, they lower prices slowly. It's a lose-lose for the companies. The LPG subsidy is necessary for poor families, but can't the govt at least compensate fully instead of Rs 19.8 billion when losses are Rs 158 billion? 😤
Honestly, I think the market is overreacting a bit. Yes, Q1 was terrible, but BPCL and HPCL are strategic assets. The govt can't let them fail. In the long run, oil prices will moderate, rupee will stabilize (hopefully), and these stocks will bounce back. But short-term pain is real—Rs 40 billion loss for BPCL is huge. Anyone holding these shares should have a strong stomach. 🫡
What's really worrying is the negative marketing margins on diesel (Rs 25.2/litre) and petrol (Rs 7.7/litre). That's not sustainable. The war in West Asia is a mess—Iran-Israel tensions, Houthi attacks, etc.—and it's driving up crude. Meanwhile, our currency is at historic lows. The govt needs to think about energy security beyond just subsidies. Maybe time to accelerate renewable energy investments? 😔
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