New Delhi, Oct 13 | 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.
Auto fuel net marketing margin for India refiners is estimated at Rs 4.44 per litre 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.
Net marketing margin determines how much a company is making on retail sale 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 positive movement of net margin for Indian refiners, FY21 estimate on margin has been raised by 32 per cent to Rs 3.3 per litre.
The brokerage report said that the net margin has to be just Rs 2 per litre or higher in H2 for FY21E net margin to be Rs3 per litre or higher. But with net margin at Rs 3.08 per litre in Q3FY21 till date , Rs 3.07 per litre on October 11 and Rs 3.03 per litre at the latest prices, the estimate could go up further.
“We have raised our FY21E auto fuel net marketing margin estimate by 32 per cent to Rs 3.3/l from Rs 2.5/l earlier; our revised estimate implies 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 per cent YoY in September 2020 vs 19-21 per cent YoY in July-August, and of petrol was up 3.3 per cent YoY in September 2020 vs down 10-8 per cent YoY in July-August 2020. Total petroleum product consumption is also down just 4.4 per cent YoY in September 2020 vs 12-16 per cent in July-August.
Based on the movements, the brokerage has now estimated FY21 petrol volume decline of 10 per cent YoY vs 15 per cent YoY earlier.