Russian crude accounts for 35%-40% of crude imports for Indian OMCs. A full halt of these imports could hurt their Ebitda by about 10%. Research estimates suggest OMCs were getting $1.5-2/barrel discounts on crude imports from Russia. Assuming no change in crude prices, just the shift in sourcing would increase the cost by $2/barrel.
The rise in the crude sourcing cost will impact marketing margins if not passed on. Generally, every $1/barrel rise in crude lowers marketing margins by Rs 0.5/litre. Hence, the Ebitda of OMCs will be impacted by 10%. But, the credit ratings for IOC, BPCL, and HPCL are expected to remain unaffected due to government support, according to Fitch.
According to Emkay Global Financial Services, OMC stocks have seen the weakness from the volatile Russian scenario, with the US imposing additional tariffs on India due to import of discounted Russian crude. The government has maintained national interest with no explicit order to domestic refiners.
However, as per management commentaries in Q1, crude decisions are commercially driven. The brokerage also verified that the discount on crude oil was ~$1.5/barrel only. BPCL has the highest share of Russian crude at ~35%, followed by IOC at ~25%, and HPCL at just ~13%.
Hence, compared with Q1’s core gross refining margins of $6.6-6.9/barrel, the downside risk from Russian crude is only up to $6.4-6.5/barrel. There was also an impact of intermediate stocks from a diesel unit’s turnaround for HPCL in Q1.
According to Emkay, the Q2 GRMs should be better for OMCs, with middle distillate cracks strengthening and oil prices largely stable. This comes despite the Ebitda hit of nearly 10% in the near-term over tariff pressure.
