New Delhi, May 5 (IANS): State-owned oil marketing companies (OMCs) including Indian Oil, BPCL, and HPCL may see significant erosion in the earnings during the January-March quarter of FY20 even though low crude and product prices jacked up their margins on the sale of petrol and diesel.

According to a research report by ICICI Securities, the OMCs would report large inventory loss of Rs 33,100 crore in January-March quarter of FY20. This would result in sharp erosion in earnings that would push the companies into the red again.

However, a lot of losses in Q4 would be recuperated by the companies in April-June quarter of new fiscal FY21. The brokerage research is putting net marketing margin on sale of petroleum products for OMCs at highest-ever level of of Rs 13.5 per litre in the current three month period. This is because fall in refinery transfer price (RTP) by Rs 8.55-12.6 per litre since March 16, 2020 has not been passed on to consumers.

Companies make inventory losses in a falling market as the cost of the inventory in the form of crude and products is higher that the prevailing prices.

The brokerage said that higher marketing margin on auto fuels has continued since Q4 of FY19 as the government is looking to get better valuation for Bharat Petroleum Corporation Ltd (BPCL) where it has initiated strategic disinvestment process.

This has, however, led to a situation where consumers are not getting the gains of lower global oil prices. At current crude prices, retail price of petrol and diesel could have been lower by Rs 5-6 per litre.

But oil companies have not revised the auto fuel prices for over 50 days and it is only now that petrol and diesel prices have gone up with few states raising VAT on the product to mobilise additional revenue to fight the coronavirus outbreak.

In an earlier report by ICICI Direct, it projected that BPCL may report a net loss of Rs 556.2 crore in Q4, while Indian Oil may report significantly higher losses at Rs 2,376.3 crore. The loss for HPCL was projected at Rs 628.4 crore in January-March quarter.

But the good news for OMCs is that despite lower sales in Q1 FY21 (auto fuel sales volume down 62 per cent YoY in 1-15 Apr'20, the net auto fuel marketing margin being almost twice the level of last year, would prevent companies from being in losers in 2020-21.