Fuel Retailers See Profit Slump In Q1 After Record Earnings In Fiscal 2024

State-run fuel retailers Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. posted up to 90% slump in their June quarter earnings, after reporting record profits in fiscal 2024, as margins fell and they booked under-recovery on the sale of domestic cooking gas LPG at government-controlled rates.

India's largest oil firm, IOC's standalone net profit fell 81% to Rs 2,643.18 crore in the quarter ended June 2024, according to a company filing. Net profit also declined sequentially, when compared to an earning of Rs 11,570.82 crore in March quarter.

Hindustan Petroleum Corp., or HPCL, posted 90% drop in profit to Rs 633.94 crore as compared to an earning of Rs 6,765.50 crore in April-June 2023 and Rs 2,709.31 crore in the preceding March quarter.

Bharat Petroleum Corp., or BPCL, net profit dropped to Rs 2,841.55 crore in April-June from Rs 10,644.30 crore a year back and Rs 4,789.57 crore in January-March, its filing showed.

The three fuel retailers made extraordinary gains from holding petrol and diesel prices despite a drop in cost. The price freeze was justified in the name of recovering losses they had suffered in the previous year when they did not raise retail prices despite a surge in cost.

The gains arising from the price freeze were eroded with petrol and diesel prices being cut by Rs 2 per litre each just before general elections and a fall in refining margins.

Also, the three had uncompensated LPG subsidy - IOC booking under-recovery of Rs 5,156.23 crore in April-June, BPCL Rs 2,015.10 crore and HPCL Rs 2,443.71 crore, according to the filings.

As per an order of the oil ministry, when market determined price of LPG cylinders is less than its effective cost to customer, oil marketing companies, or OMCs, have to retain the difference in a separate buffer account for future adjustment. However, as on June 30, 2024, the three firms had a net negative buffer as the retail selling price was less than MDP.

The three retailers IOC, BPCL and HPCL had reported record profits totalling about Rs 81,000 crore in fiscal 2024, which was far more than their annual earnings of Rs 39,356 crore in pre-oil crisis years.

This is because they resisted calls to revert to daily price revision and pass on softening in rates to consumers on grounds that prices continue to be extremely volatile - rising on one day and falling on the other - and that they needed to recoup losses incurred in the year, when they kept rates lower than cost.

IOC in 2023-24 posted a standalone net profit of Rs 39,618.84 crore compared to Rs 8,241.82 crore in 2022-23. While the company could argue that fiscal 2023 was impacted by the oil crisis, the fiscal 2024 earnings are higher than even the pre-crisis years — Rs 24,184 crore net profit in 2021-22 and Rs 21,836 crore in 2020-21.

BPCL posted a net profit of Rs 26,673.50 crore in fiscal 2024, higher than Rs 1,870.10 crore earnings in 2022-23 and Rs 8,788.73 crore in fiscal 2022.

HPCL's 2023-24 profit of Rs 14,693.83 crore is compared with a Rs 8,974.03 crore loss in fiscal 2023 and a profit of Rs 6,382.63 crore in 2021-22, according to the filings.

The losses in fiscal 2023 had led to the finance minister announcing Rs 30,000 crore equity infusion in the three firms. Mid-way through the year, that support was halved to Rs 15,000 crore. The support was to happen by way of equity infusion via a rights issue.

But after the record profits of 2023-24, the equity infusion plan has now been scrapped.

Finance Minister Nirmala Sitharaman had on Feb. 1 last year, while presenting the annual Budget for the 2023-24 fiscal (April 2023 to March 2024), announced an equity infusion of Rs 30,000 crore in IOC, BPCL and HPCL to support the three state-owned firm's energy transition plans.

In the interim budget that the finance minister presented in February this year ahead of the general elections, the capital support to the three oil companies was halved to Rs 15,000 crore.

In the full budget for 2024-25, both plans have been scrapped.

While other state-owned oil companies like Oil and Natural Gas Corp. and GAIL (India) Ltd. too have lined up billions of dollars of investment to achieve net-zero carbon emissions, the equity support was limited to the three fuel retailers, which had suffered huge losses in 2022 when they held retail petrol, diesel and cooking gas (LPG) prices despite a spike in raw material (crude oil) prices, following Russia's invasion of Ukraine.

The board of IOC and BPCL had last year approved rights issues to raise to Rs 22,000 crore and Rs 18,000 crore, respectively. The government was to participate in the rights issue.

The three companies, which control roughly 90% of India's fuel market, 'voluntarily' have not changed petrol, diesel and cooking gas (LPG) prices, resulting in losses when input costs were higher and profits when raw material prices were lower.

They posted a combined net loss of Rs 21,201.18 crore during April-September 2022 despite accounting for Rs 22,000 crore announced but not paid LPG subsidy for the previous two years.

Subsequent softening of international prices and government giving out LPG subsidies helped IOC and BPCL post annualised profit for 2022-23, but HPCL was in the red.

In fiscal 2024, things changed dramatically, and the three firms posted record earnings.