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Oil marketing companies (OMCs) have raised marketing margins in a year of rising fuel prices, helping them reduce debt by nearly half in just a year.

For OMCs such as Indian Oil Corp. Ltd (IOCL), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), daily gross marketing margin on auto fuels now stands at over 3 per litre. The debt reduction thanks to better margins assumes significance against the backdrop of the current privatization of BPCL.

“Even as retail prices for auto fuels in India touch record highs, OMCs are earning marketing margins of 2.8-3.6 per litre on petrol-diesel (higher than their long-term average of 3 per litre) due to regular price hikes," said Motilal Oswal in a 22 February note.

Prices of petrol and diesel were steady across the country for the second consecutive day on Monday. They last moved on Saturday when petrol price was hiked by 24 paise per litre and diesel by 15 paise in the national capital. The price of petrol in Delhi stands at 91.17 per litre while diesel is at 81.47. In Mumbai, petrol currently costs 97.57, while diesel is retailing at 88.60, data available on IOCL’s website showed.

“With Brent crossing $65 per barrel, another 2.2-2.4 per litre hike in pre-VAT (value-added tax) prices is required over the coming fortnight," said Emkay Research in a note dated 23 February.

The debt OMCs hold on their books has come down drastically at the end of third quarter of this fiscal year. While IOCL’s debt stands at 72,500 crore against 1,16,500 crore at the end of FY20, BPCL’s debt stands at 24800 crore against 41,900 crore at the end of FY20 and HPCL’s debt stands at 33,300 crore against 43,000 crore at end of FY20.

The government, through excise duty, and OMCs through gross marketing margins have been using margins on auto fuels as a key tool to manage their finances. Handsome marketing margins are also helping OMCs offset the weakness in gross refining margins (GRMs). During the third quarter, IOCL reported a GRM of $2.2 per barrel versus $8.6 in Q2FY21, BPCL reported $2.5 versus $5.8 and HPCL reported $1.9 versus $5.1. However, core GRMs excluding inventory gains were lower at $1.2 for IOCL, $1.2 for BPCL and negative $1.0 for HPCL.

OMCs did not reply to an email sent on 26 February.

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