Jun 16, 2004|
Oil price hikes: An impact analysis
Oil companies, which have been crying foul over the freeze on petroleum product prices over the last six months have at least something to cheer about after yesterday's double impact announcements by Petroleum minister to hike prices along with a cut in duties of major petroleum products. Along with this announcement, the government has shown its intentions that in case tough measures are needed, it would not shy away.
The announcements made yesterday were as under:
- Petrol prices increased by Rs 2 per litre and Re 1 in case of diesel.
- Cooking gas (LPG) prices hiked by Rs 20 per cylinder.
- Kerosene (SKO) prices untouched.
- Excise duty on petrol down 4% (from 30% to 26%).
- Excise duty on diesel down 3% (from 14% to 11%).
- Excise duty halved on LPG (from 16% to 8%)
The likely financial burden on the economy due to high international oil prices is likely to be around Rs 180 bn in FY05. In order to cushion this burden, the government has announced a slew of measures including price hikes and duty cuts. The duty cuts however, would reportedly eat into the government revenues to the tune of Rs 30 bn.
As per our estimates, the announcements of price revision shall result in net incremental revenues to the tune of Rs 147 bn in FY05. We believe that LPG shall continue to grow at 12% per annum in FY04 and at the same time, petrol and diesel sales shall show a modest 3% growth in terms of volumes. Keeping the current price rise as constant for the year, the calculations have been done considering that all petrol and diesel sales are at the retail level. The below mentioned table gives the impact of prices per liter of LPG, petrol and diesel and the net incremental impact on the revenues of oil companies.
||Net gains (Rs in bn)
Prices of petrol and diesel have been calculated at the retail level on the basis of simple average of all the four metro prices and have been, henceforth, kept at a constant for the full year FY05.
The above measures shall help the companies reduce costs by way of duty cuts and at the same time boost the marketing margins. The government has not touched upon the customs duties, which were expected to be cut. This is a positive for the standalone refineries, as the gross refinery margins remain intact. Although, India does not import petroleum products significantly, except LPG (imports of 1.5 MMT as compared to consumption of 9.3 MMT in FY04), customs duty play a big role in calculating the prices as per import parity prices which are realized by the refineries from the marketing companies.
The announcements has been an overall positive and is likely to be the first step in the oil package that the government is likely to announce in the budget, thereby giving more autonomy by setting up a price band for the oil companies to increase prices of products within the socially acceptable range. Overall, we believe that the decision has a positive impact on the oil companies. But we have a history of rollbacks and it remains to be seen whether the government sticks to its decisions.
More Views on News
Mar 27, 2017
GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.
Mar 17, 2017
ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.
Jan 24, 2017
Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.
Dec 3, 2016
GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.
Nov 3, 2016
ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407