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MOSL: OIL & GAS-Return of the devil (subsidies)? Government asks OMCs to absorb INR1/lit in auto fuel prices

OIL & GAS: Return of the devil (subsidies)? Government asks OMCs to absorb INR1/lit in auto fuel prices

 

• Petrol prices have increased from INR70/lit in Jan’18 to INR83/lit and diesel prices from INR60/lit to 75/lit due to an increase in oil prices and INR depreciation.
• The government has cut the excise duty by INR1.5/lit. Contrary to our expectation, it has also asked the oil marketing companies (OMCs – IOCL, BPCL and HPCL) to absorb INR1/lit.
• We expect this to adversely impact 24-48% of our earlier FY20 EPS estimates. More importantly, this marks a U-turn from deregulation and raises possibility of a return to subsidy regime.

 

Auto fuel prices have risen by 17-31% since June 2014

• Although benchmark diesel price declined from USD123.5/bbl in Jun’14 to USD93.2/bbl in Jun’18, INR depreciation resulted in C&F declining much lesser from INR45.1/lit to INR42.4/lit. An increase of excise duty from INR3.56/lit to INR15.33/lit, a rise of INR4.3 in VAT and INR1.4/lit in dealer commission resulted in retail prices increasing from INR57.28/lit in Delhi to INR75/lit currently.
• Similarly, the price of petrol also increased from INR71.4/lit to INR84/lit, with an increase of INR10/lit in excise accounting for the most of it.
• Due to the concerns about rising auto fuel prices, the government has asked the OMCs to ‘absorb’ INR1/lit in auto fuel prices in addition to it cutting excise by INR1.5/lit and requesting the state governments to cut VAT to provide further relief to consumers.