Rising under-recoveries to shave operating profit margins of OMCs: Report

Thinner spreads and rising under-recoveries are expected to shave the operating profit margins of oil marketing companies (OMCs) by 1.5-1.7 per cent this fiscal, even as crude prices remain elevated and volatile, a report said.

According to the rating agency Crisil, operating margins had declined 1.6 per cent in fiscal 2019.

"We also foresee net profit margins coming under pressure because of higher interest costs. OMCs have had to contract 22 per cent more short-term debt last fiscal because of inadequate payments from the government, and also to service under-recoveries of the recent past," Crisil Research Senior Director Prasad Koparkar said.

In fiscal 2019, profitability of OMCs was hit as their average gross refining margin (GRM) declined by a third to USD 5.3 per barrel from USD 7.9 in fiscal 2017-18.

This fiscal, GRMs are foreseen even lower at USD 4-5 per barrel, without considering inventory losses/gains, mainly due to spreads, which have been under pressure since the third ..