New Delhi, Nov 4 (IANS): Even as consumers continue to pay higher prices for auto fuels petrol and diesel, the country's biggest oil marketing companies are expected to reap higher margins on the sale of the two products substantially improving their profitability.

As per oil sector analysts, at the current retail price of petrol and diesel, OMCs are making a net marketing margin of Rs 4.78 per litre, much higher than levels prevailing in previous months. What more, the companies are making money on the sale of petrol and diesel while keeping the retail price of the two products unchanged for over a month now, denying consumers of price cuts on fuel prices during the current difficult period.

According to a report by ICICI Securities, auto fuel net marketing margins are estimated at Rs 4.43 per litre in H1FY21. This means that even if the net margin remains lower at Rs 2,56 per litre, OMCs would achieve the target margin of Rs 3.3 per litre given by the brokerage for FY21.

"With net margin at Rs 3.28/l in Q3FY21 to date, Rs 3.78/l on November 3 and Rs 4.78/l at latest prices, it appears likely that net margins would be higher than our FY21 estimate of Rs3.3/l," ICICI Securities projected in its report on the oil sector.

What is more, OMCs are also seeing an increase in the consumption of petrol and diesel as unlock of the. economy post-Covid-19 related lockdown a has kicked up demand for fuel as economic activities pick up. This means that at OMCs May gain further from Increased volumes in addition to higher net margin available on the products.

According to the brokerage, in September 2020, consumption of petroleum products was down just 4 percent YoY (19 percent in H1FY21), diesel down 6 percent YoY (down 25 percent YoY in H1), while petrol was up 3 percent YoY (down 21 percent in H1). In October 2020, petrol consumption was up yet again at 4.2 percent YoY, even diesel was up 6.6 percent YoY.

The report said that though weak gross refining margin (GRM) and diesel cracks are a concern for OMCs, underlying data is improving especially with inventories declining. Even in India, petrol and diesel inventories continue to fall. This augurs well for OMCs; their valuations are cheap and dividend yield high.