India's oil refiners may cut fuel prices as financial health stabilises: Exclusive

The government is likely to ask India's Oil Marketing Companies - Indian Oil, BPCL and HPCL to cut fuel prices as their financials are now in better shape, sources with knowledge of the matter told CNBC-TV18.

Sources said that the financial health of the OMCs is close to normalcy led by fuel under recoveries. The March quarter turned out to be a good one for the state-run refiners as they cumulatively posted a net profit of nearly Rs 20,000 crore. The source adds that the OMCs are likely to have a good June quarter as well.

'Within bounds of legitimacy, OMCs can pass on some benefit,' the source said. A decision on the same is awaited.

However, one must note that despite the profits in the March quarter, HPCL still reported heavy losses of nearly Rs 9,000 crore in financial year 2023 on a standalone basis.

India's oil refiners were hammered in the first two quarters of financial year 2023 with cumulative losses running into thousands of crore. While oil prices were higher then, prices on retail pumps remained unchanged due to various factors. Brokerage firm Citi wrote in a note back in December last year that diesel is close to breakeven levels from OMCs from a retail marketing perspective and can even quicken the pace of normalisation for the refiners.

The tide does appear to be changing for the Oil Marketing Companies as the street is starting to view them in positive light. Last month, Nomura upgraded these companies citing them to be on-track to recover about Rs 23,500 crore and that they are likely to make good on the entire under-recovery in financial year 2025. It also raised price targets for all three firms.

The cut in fuel price narrative was echoed by Morgan Stanley in a note on Wednesday. The brokerage said that the current fuel prices offer a buffer for a 2-5 percent price cut. It also said that the OMCs can recover more than their pre-Ukraine book values in the next two months. Among stocks, it highlighted Indian Oil and BPCL as its preferred picks.