For oil marketing giants, which are already on a slippery course following the sharp spurt in crude oil prices, the falling rupee has added fuel to the fire. While the January-March quarter performance — set to be declared in the coming days — is expected to be far from cheerful, the ongoing quarter (April-June) could turn out to be a nightmare for oil sector managers.After rising 12 per cent last year, the rupee has fallen by over eight per cent in the last three months to 42.71-level. “If the US dollar appreciates against the rupee in the near term, losses of the companies would be even larger. This would pull oil companies deeper into the red,” said an analyst with a leading brokerage. While Hindustan Petroleum Corporation Ltd (HPCL) had reported a loss of Rs 15.7 crore during the December quarter, Bharat Petroleum Corporation Ltd (BPCL) profits plummeted from Rs 1,038 to Rs 291 crore and Indian Oil Corporation (IOC) from Rs 3,817 crore to Rs 2,090 crore from the preceding quarter. Net profit margins of the sector are under severe pressure, analysts said. Last year, exchange rate gains and higher refining margins could provide a cushion for the under-recoveries. However, any depreciation of the rupee now will impact the refineries’ profitability, as they would have to fork out more rupees for every dollar. “Every 100 paisa fall in rupee against the US dollar would add another 9,000 crore to the under-recovery bill of the three companies in FY09. At the present price level of crude and the rupee, total under-recovery for the financial year would be around Rs 1,80,000 crore,” said Religare Securities senior research analyst Sudeep Anand. Going by this calculation, oil firms could have lost Rs 18,000 crore on account of the recent rupee fall alone.“With ambiguity over how much of it would be absorbed by the finance ministry, oil manufacturing companies (OMCs) will face increasing pressure,” said Angel Broking senior research analyst Rohit Nagraj. But the rise in crude prices is continuing unabated. In such a scenario, oil bonds issued by the finance ministry to absorb under-recoveries are not much helping these OMCs either. By the virtue of their non-SLR status and long tenures, companies are finding it difficult to dispose existing oil bonds. “Oil bonds are credited in the profit and loss account of OMCs, thereby causing income-tax incidence. As they are shown as profits of the companies, dividend is also paid accordingly, hurting the cash flows of these OMCs badly,” said Karvy Stock Broking oil and gas analyst Manish Joshi.“There should be clarity on the government’s part as how much of the under-recoveries they would absorb, so that OMCs as well as investors in these companies have a clear picture,” said Nagraj. For 2007-08, the finance ministry has decided to absorb only 50 per cent of the total under-recovery bill as against an earlier commitment of 57 per cent. It is not surprising that over the last three months, share prices of the 3 OMCs have fallen by around 23 per cent. While IOC’s stock price tanked by 26.38 per cent, HPCL took a 20.19 per cent dive and BPCL dipped by 23.04 per cent. How they faredCompany Q3, 07-08 HPCL -15.7 BPCL 291.3 IOC 2090 Company Q2, 07-08HPCL 853BPCL 1038IOC 3817Net profit Rs crore
