India Oil Firms' Losses Widen Despite Tax Cut, Nomura Reports

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AuthorVihaan Mehta|Published at:
India Oil Firms' Losses Widen Despite Tax Cut, Nomura Reports
Overview

Government excise duty cuts on petrol and diesel offer insufficient relief for oil marketing companies (OMCs), according to Nomura. Rising crude oil prices, coupled with stable retail fuel rates, are leaving OMC margins deeply negative, with estimated losses of ₹30-40 per litre in key markets like Delhi. While integrated operations provide some cushion, sustained marketing losses persist.

Tax Cut Offers Little Relief

India's oil marketing companies (OMCs) are not getting enough relief from the recent excise duty reduction on petrol and diesel. Nomura's analysis shows the ₹10 per litre tax cut, which took effect on March 27, is not enough to cover the large losses OMCs are incurring. This is mainly because global crude oil prices have surged, while domestic retail fuel prices have stayed largely the same.

Marketing Losses Deepen

Companies are currently losing significant money on fuel sales. This is because input costs have risen sharply while pump prices are controlled. Nomura estimates that marketing margins remain deeply negative, with projected losses of over ₹30-40 per litre for petrol and diesel in key markets like Delhi. This means fuel is still being sold below cost, even after the duty cut.

Integrated Operations Help Partially

While the core fuel sales business is struggling, the overall financial picture for some OMCs looks better when considering their refining and other business segments. Indian Oil Corporation Ltd (IOCL) might be close to breaking even overall, whereas Hindustan Petroleum Corporation Ltd (HPCL) is still facing large shortfalls. Refining margins and operational gains help offset marketing losses but don't fully cover them.

Future Outlook

Oil marketing companies will likely continue to struggle with sales operations unless domestic fuel prices are adjusted to match global crude oil trends, despite government efforts. This situation shows a gap between global oil markets and India's domestic fuel pricing policies.

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