December 02, 2022 (MLN): The government has increased the margins on MS and HSD for Oil and Marketing Companies (OMCs) to Rs4 and Rs5 per litre from Rs3.68 per litre previously, as per notified by Oil & Gas Regulatory Authority (OGRA).
The increase in margins is primarily attributed to the easing of oil prices in the international market which has allowed the government to fulfill its promise of margin revision partially.
However, the government initially agreed for OMCs to increase margins to Rs6 per litre on both MS and HSD as it was approved by the Economic Coordination Committee (ECC) on November 1, 2022.
“The government has communicated to OMCs that the margins will only increase again once international oil prices fall, giving room for the government to increase Petroleum levy and OMC margins accordingly,” a report by Intermarket Securities noted.
This has been witnessed in the current oil prices notification.
The OMC sector is facing temporary headwinds during the ongoing fiscal year due to reduced demand amid a slowdown in overall economic activity and inventory losses as international oil prices continue to come off.
However, demand uptick in FY24 onwards combined with a meaningful hike in margins should translate into improved cash earnings and a healthy dividend yield for the sector, it added.
