State-owned fuel retailers report 90% drop in Q1 earnings
What's the story
India's state-owned fuel retailers, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), have reported a substantial decline in their Q1 earnings for the fiscal year 2024-25. This downturn follows a period of record profits, with the companies witnessing up to a 90% decrease in their June quarter earnings. The slump is attributed to shrinking margins and under-recovery on domestic cooking gas (LPG) sales at government-regulated rates.
Profit drop
IOC, HPCL, and BPCL witness profit plunge
IOC, India's largest oil firm, reported a significant 81% decrease in standalone net profit in April-June to ₹2,643.18 crore from ₹13,750.44 crore a year ago. Similarly, HPCL posted a steep 90% drop in profit to ₹633.94 crore, compared to an earning of ₹6,765.50 crore in April-June 2023. BPCL also experienced a dip, with its net profit falling to ₹2,841.55 crore in April-June from ₹10,644.30 crore the previous year.
Factors
Factors contributing to the profit slump
The three fuel retailers had previously benefited from maintaining petrol and diesel prices despite a cost reduction. However, these gains were offset when petrol and diesel prices were reduced by ₹2 per liter each, just before general elections, coupled with a fall in refining margins. Additionally, the companies had an uncompensated LPG subsidy, with IOC booking under-recovery of ₹5,156.23 crore in April-June, BPCL ₹2,015.10 crore and HPCL ₹2,443.71 crore due to government policies on LPG pricing.
Equity infusion
Government scraps equity infusion plan for fuel retailers
Despite the losses in FY23 leading to Finance Minister Nirmala Sitharaman announcing a ₹30,000 crore equity infusion in these firms, this plan has now been scrapped. The capital support was initially halved to ₹15,000 crore in the interim budget presented ahead of the general elections, and has been completely removed in the full budget for 2024-25.