A 19-day freeze on prices before the Karnataka elections hurt oil retailers. But that came after a quarter of higher auto fuel prices that helped the state-run companies.
Marketing margins of Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. and Hindustan Petroleum Corporation Ltd. rose in the quarter ended March. That helped their marketing segment despite no major increase in sales volume.
The petroleum products sales volume of the three retailers ranged from a fall of 1 percent to a growth of 0.8 percent. Still, the marketing segment expanded on the back higher margins.
The marketing margin had fallen in the run-up to the Gujarat elections in the three months ended December. The retailers made up for the losses as they increased fuel prices steadily in the next quarter.
Since then, there has been a steep decline in the margins due to the Karnataka elections. Alongwith this the refining margins have also been on a declining trend thereby indicating a weak June ended quarter.
In the fourth quarter though, operating income or earnings before interest, tax, depreciation and amortization declined for IOC and HPCL mainly because of lower inventory gains, while that of BPCL increased on account of strong operational performance from both refining and marketing segment.
Inventory gains were lower as the oil prices had surged nearly 18 percent in the December ended quarter compared with a 9 percent rise in three months to March. Inventory purchased at lower prices leads to gains if crude oil rises and vice versa.
All the three oil retailers trade below their five-year average valuations. HPCL trades at a discount of nearly 23 percent to its five-year average, while IOCL and BPCL at a discount of 12 percent and 6 percent.
The 12-month target price suggests that HPCL will give the highest return, according to Bloomberg.