Inventory Gains, Rising Fuel Demand Aid Oil Marketers’ Recovery In Q2
Refining towers at an oil refinery in Poland. (Photographer: Bartek Sadowski/Bloomberg)

Inventory Gains, Rising Fuel Demand Aid Oil Marketers’ Recovery In Q2

Earnings of Indian oil marketers, in the quarter ended September, received a boost from inventory gains and rising fuel consumption, as economic activity picked up in the aftermath of the coronavirus lockdown.

Net profit of Indian Oil Corp. Ltd. and Bharat Petroleum Corp. Ltd. rose sequentially, while Hindustan Petroleum Corp. Ltd.’s fell. That came as crude oil prices increased by nearly 26.7% over the previous quarter to $43.1 per barrel during the same period. Petrol consumption rose 3.3% year-on-year, while that of diesel fell 6% over a year ago—compared to a 20.7% decline in August.

How They Fared In Q2


  • Profit rose 8% sequentially to Rs 2,247 crore, above analysts’ estimate of Rs 1,146 crore.
  • Revenue rose 29% quarter-on-quarter to Rs 50,146 crore. Analysts had expected Rs 51,833 crore.
  • Gross refining margin stood at $3.19 per barrel—above the $2.3 per barrel estimate.

Indian Oil

  • Net profit rose more than threefold to Rs 6,227 crore, aided by a surge in other income. Analysts estimated the metric at Rs 2,552 crore.
  • Revenue rose 37% sequentially to Rs 85,611 crore.
  • GRM stood at $8.6 per barrel compared with minus $1.98 in the last quarter.


  • Net profit declined 12% to Rs 2,477.4 crore even as other income grew 45%.
  • Revenue grew 37% sequentially to Rs 51,773 crore.
  • GRM stood at $5.1 per barrel compared with $0.39 in the last quarter.

Softening of interest rates and reduced borrowings aided profits as finance costs fell. Yet, marketing volumes declined in the second quarter because of pandemic-related disruptions. Volumes for Indian Oil, BPCL and HPCL contracted by 20%, 15% and 9.5% year-on-year, respectively, in the second quarter.

What Companies Said


BPCL’s capex plan for FY21 stands at Rs 8,000 crore, lower than the Rs 12,500 crore it had guided for in FY20. There is no impact on the reduction in capex on its major ongoing projects, Motilal Oswal said in a report. The company has pared its debt by around 16.5% quarter-on-quarter to Rs 33,900 crore, and at present faces no under-recoveries on public distribution systems and LPG subsidies, aided by benign global crude oil prices.

BPCL’s gross refining margin, Nirmal Bang said in a report, will eventually recover as they’re are unsustainable at present and lower oil prices may stimulate demand for petroleum in other emerging markets. Nomura expressed concern at the possibility of a further hike in excise duty on fuel and low prospects of retail price hikes. In a report, the brokerage listed the company’s divestment as a key catalyst and expects it to be completed in the first half of 2021.

Indian Oil

Motilal Oswal expects demand revival to absorb Indian Oil’s excess inventory and aid margin recovery. It said in a report the company has traded at a huge discount in the past decade on account of its capex cycle. The company is now at the end of its capex cycle and its return on equity is set to increase to 16.7% in 2022-23 from 9.1% in 2019-20, the brokerage said.

Indian Oil has indicated it may incur greater capex—for refining, marketing, petrochemicals, product and gas pipelines, and investment in group companies—than the Rs 26,000 crore it had guided for in FY21.

The company pared its debt sequentially by nearly 7.2% to Rs 91,500 crore as on Sept. 30. Refinery utilisation was ramped up to 95% in October, which it expects to touch 100% soon given the recovery in demand.


The company’s domestic sales and crude throughput declined on a year-on-year basis. It announced a share buyback worth Rs 2,500 crore from the open market at a price not exceeding Rs 250 per share.

Jefferies expects HPCL’s earnings per share to grow at an annualised rate of 45% through the three years till FY23 amid normalised refining cycle and marketing growth. The stock is languishing at five-year lows, the brokerage said in a report, and valuations are at a deep discount to historical averages.

The company said its refining margins should revive as global economic activity picks up and inventories fall. It expects lower volatility in crude oil price to help maintain marketing margin and make it less vulnerable to inventory losses.

HPCL is working on petrochemical integration projects over the next three to four years and has capex plans amounting to Rs 11,500 crore for FY21. It commissioned 895 new retail outlets in the first half of the ongoing fiscal and plans to add another 900 outlets by the year-end.

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