Slipping profits in Q4FY24 due to inventory loss, says Indian Oil

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3 min read Last Updated : May 03 2024 | 11:18 PM IST


State-run Indian Oil Corporation Limited (IOCL) has blamed inventory loss for the nearly 50 per cent fall in year-on-year net profit in the fourth quarter (January-March) of FY24.


‘It is to be noted that the decrease in net profits is majorly due to inventory losses in Q4 versus inventory gains in Q3,’ IOCL said on Friday.


During the fourth quarter of FY24 (January-March 2024), state-run Indian Oil Corporation (IOCL) saw its consolidated net profit fall 49.3 per cent to approximately Rs 5,149 crore from Rs 10,290 crore in Q4 of FY23. On a sequential basis, net profit slipped 43 per cent from Rs 9,030 crore.


Since inventory is valued on a cost basis, a significant drop in oil prices over a particular quarter depresses the inventory valuation. This is because Oil Marketing Companies (OMCs) have to sell the refined petroleum product at lower prices or margins than what they had paid for the crude oil.


Oil Marketing Companies typically hold inventory for 40-50 days. Also, it takes three to four weeks for crude oil shipments to reach their destination.


IOCL’s statement is borne out by the fact that in September and October last year (Q3 FY24), crude prices as measured by the Brent Last Day Financial index remained elevated, hovering above $85 per barrel. However, for most of Q4 FY24, the prices remained below $80 per barrel, only moving above the $85 per barrel level after March 15.


‘As per the numbers released, earnings before interest, taxes, depreciation, and amortization (EBITDA) for Q4 is Rs 12,091 crore. The company had reported inventory losses in some of the products which is affecting the Q4 EBITDA. Inventory valuation is also impacted by any subsequent drop in prices post the reporting date,’ IOCL said.




 


Tightening Refining Margins


‘Core Gross Refining Margin (GRM) stood at $10.6 per barrel (versus $20.1 per barrel in 4QFY23 and $10 per barrel in 3QFY24), implying an inventory loss of $2.2 per barrel during the quarter,’ Motilal Oswal said in a note on Thursday. GRM refers to the revenue refiners accrue from transforming each barrel of crude oil into refined fuel products.


On Friday, IOCL said GRMs for Q4 stood at $8.39 per barrel. This was 15 per cent higher than the benchmark Singapore GRM of $7.32 per barrel.


The OMC said crude throughput for IOCL refineries in FY24 was 1 per cent higher than the previous year, climbing to a record high of 73,308 million metric tonnes (MMT).

First Published: May 03 2024 | 11:17 PM IST