BPCL Q3FY23 net profit down 36.7 per cent on weak selling margins

For the December 2022 quarter (Q3FY23), BPCL reported 36.7% lower net profits at Rs1,747 crore. For the same period, revenues from operations were up 13.5% at Rs133,348 crore. This was reflected in 9-month market sales of 36.01 million metric tonnes (MMT) in FY23 to date. Volume growth came from ATF (71.77%), HSD-Retail (28.50%) and MS-Retail (19.97%).

For the first 9 months of FY23, average Gross Refining Margin (GRM) of BPCL at $20.08 per barrel was up nearly 3-fold yoy. Actual GRM growth will be lower since the impact of Special Additional Excise Duty (SAED) and the Road & Infrastructure Cess, levied effective 01st July, 2022 are not factored in. 

As has been the story in the last 2 quarters, BPCL has been selling petrol and diesel at its retail fuel pumps below the gate costs; leading to negative marketing margins. This substantially offset gains accruing to BPCL from higher gross refining margins (GRMs). As a result, operating margins of BPCL for Q3FY23 more than halved to 1.26% while net margins fell 94 bps to 1.47%.

Technically, under the new pricing formula for petrol and diesel, the oil marketing companies (OMCs) are free to price based on the landed cost of crude. However, OMCs like BPCL have put such price hike decisions on hold for two reasons. Firstly, the price of petrol and diesel have larger political ramifications and that cannot be afforded with many elections in the anvil. 

Secondly, the price of petrol and diesel have strong externalities for consumer inflation and that could work contrary to the anti-inflation stance of RBI and the government. In the last 2 quarters, the government has compensated the OMCs for these losses, and in Q3FY23, such compensation should be lower.