Shares of oil marketing companies (OMCs), which were already in the red on Thursday due to the overall weakness in the equity markets, nosedived on the BSE during the last hour of the trading session after the government announced a ₹2.50 cut in fuel prices with the OMCs absorbing a cut of ₹1 per litre.
Shares of Bharat Petroleum Corporation Ltd. (BPCL), Hindustan Petroleum Corporation Ltd. (HPCL) and Indian Oil Corporation (IOC) lost 18-22% at the fag end of the session, but managed to partially recoup the losses as the trading session came to a close.
HPCL was the worst performer shedding more than 22% during the day before closing at ₹220.60, down 12.23% or ₹30.75 on the BSE. BPCL also lost nearly 20% during the day before ending the day lower by 10.89% at ₹336.35.
Similarly, IOC lost over 18% minutes before the end of the trading session before closing at ₹140.85, down 10.57%.
“The impact of absorbing ₹1 on per litre of petrol and diesel sale on all three state-run OMCs would be ₹4,500 crore for the remaining part of this financial year. It would be ₹9,000 crore for an entire year,” said an OMC official.
Sanjiv Bhasin, executive vice-president, markets, IIFL Securities, believes that absorbing ₹1 per litre of petrol and diesel sale should not be a problem for the OMCs given that it is an emergency-like situation.
Volatility concern
Abhijeet Bora, senior research analyst, Sharekhan by BNP Paribas, is of the view that OMCs would witness volatility in the near future due to political reasons with the government trying to regulate fuel prices.
“Earnings of marketing segment of OMCs will be negatively impacted as they will have to absorb ₹1 per litre... which will result in a sharp decline in the auto fuel marketing margin,” he added.
“Moreover, in the rising oil price scenario and sharp depreciation of the rupee, the government may continue to partially regulate the auto fuel prices given several State elections scheduled in 2018-2019 and national elections due in May 2019,” he added.
Paras Bothra, president, equity research at Ashika Stock Broking, feels the government decision of directing OMCs to absorb ₹1 as negative for OMCs. “It gives an indication as such more steps can be expected in future if crude price goes up further. Also, oil price deregulation concern is looming large with this move ,” said Bothra.
