Soft global oil prices on Covid-19 related demand concerns has brought cheers to the Indian oil refining companies as the demand recovery in the domestic market is shooting up auto fuel marketing margins to record high levels.
The auto fuel net marketing margin for India refiners is estimated at Rs 4.44 per liter in H1FY21. This is considered high even as Covid badly impacted the oil sector in the first quarter period with sharp demand destruction and free fall for oil prices.
The net marketing margin determines how much a company is making on the retail sales of auto fuels such as petrol and diesel. Even with lower or falling fuel prices, margins for companies have remained high.
According to a research note on the oil sector by ICICI Securities, based on the positive movement of net margin for Indian refiners, the FY21 estimate on margin has been raised by 32 percent to Rs 3.3 per liter.
The brokerage report said that the net margin has to be just Rs 2 per liter or higher in H2 for the FY21E net margin to be Rs3 per liter or higher. But with net margin at Rs 3.08 per liter in Q3FY21 to date, Rs 3.07 per liter on October 11, and Rs 3.03 per liter at the latest prices, the estimate could go up further.
“We have raised our FY21E auto fuel net marketing margin estimate by 32 percent to Rs 3.3/l from Rs 2.5/l earlier; our revised estimate implies a net margin of Rs 2.58/l in H2FY21E,” ICICI Securities said in its report.
Along with projections for higher marketing margin, good news for oil companies has also come from a sharp recovery in auto fuel consumption in September.
Consumption of diesel was down just six percent YoY in September 2020 vs 19-21 percent YoY in July-August, and of petrol was up 3.3 percent YoY in September 2020 vs down 10-8 percent YoY in July-August 2020. Total petroleum product consumption is also down just 4.4 percent YoY in September 2020 vs 12-16 percent in July-August.
Based on the movements, the brokerage has now estimated FY21 petrol volume decline of 10 percent YoY vs 15 percent YoY earlier.
