25% petro price hike inevitable choice for OMCs
Combination of duty cut, retail price hike must to fight crude rally: Emkay Global
image for illustrative purpose
Oil's Not Well
- Crude oil price skyrocketed to $130/bbl
- OMCs operating at negative margin of Rs6.5-9.1
- Eventual hike of Rs28-30/litre possible
- Emkay raises FY23/24 Brent price estimate to $100/80 from $80/75
New Delhi: Coordinated action, including a cut in excise duty, reduction in value added tax (VAT) coupled with a hike in retail selling price, are required to manage the rising crude prices as oil marketing companies (OMCs) have been already operating on a wafer thin margins, brokerage house Emkay Global Financial Services said in a report.
On an average, petrol-diesel marketing margins are at negative Rs6.5-9.1 per litre and the current skyrocketing global crude prices -- $130 per barrel -- calls for an eventual hike of Rs28-30 litre on fuels, said the brokerage report.
Ongoing hostilities between Russia and Ukraine, as well as the lack of fresh supplies, have pushed crude oil price to a 14-year high of $130 per barrel on Monday.
"We are raising our FY23/24 Brent price estimate to $100/80 per barrel from $80/75, while retaining our long-term assumption at $75/bbl. FY22 average is expected to be $80/bbl."
Keeping the elevated crude prices in mind, the brokerage gave a 'Buy' call for ONGC shares with a target price of Rs 230. The scrip is currently trading at Rs 172.
For Oil India too, the brokerage recommended investors 'Buy' with a target price of Rs 335. Its current share price is at Rs 235. Besides, GAIL would also benefit from higher oil prices, it added.
"LPG price hike is also necessary as the current under-recovery of Rs 200 per cylinder on a total domestic base of 25 mmtpa implies an Rs 350 billion loss and it can further swell."
