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Under-recoveries of PSU OMCs may decline

Under-recoveries of PSU OMCs may decline

Under-recoveries of state-run oil marketing companies (OMCs) may decline owing to the fall in the price of crude oil in the international market, ratings agency Crisil said.

Under-recovery refers to the difference between the purchase price of crude oil and the retail price at which petroleum products are sold in the domestic market.

The three state-run OMCs may incur an under-recovery of Rs 70,000-80,000 crore in 2013-14, which is around 50 percent lower than Rs 1.5-1.6 lakh crore incurred in 2012-13, the agency said.

In February 2013, the under-recovery on diesel stood at Rs 11 per litre and this is estimated to have declined to Re 1-Rs 2 per litre in April 16. Diesel accounts for 45 percent of the fuel consumption in 2012-13.

The working capital requirements of oil marketing companies (OMCs) would ease with the fall in under-recoveries. This would improve the profitability and liquidity position, led by better cash flows and lower reliance on short-term loans to fund working capital requirements.

In 2013-14, the interest cost incurred by the OMCs may fall Rs 2,500-3,000 crore, which is close to half of their net profit in 2011-12, Crisil said.

Profitability of upstream oil companies such as ONGC and Oil India would also improve significantly as their share in under-recoveries would decline to Rs 25,000-30,000 crore in 2013-14 compared to an estimated Rs 50,000-60,000 crore in 2012-13.

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