Indian Oil Corporation's Q4 Profit Falls Due to Inventory Losses
Indian Oil Corporation Limited (IOCL) reported a significant decline in its net profit for the fourth quarter (January-March) of FY24. The company attributed this drop to inventory losses, which resulted from a decrease in oil prices during the quarter.
IOCL's net profit for Q4 FY24 stood at Rs 5,149 crore, a 49.3% decrease compared to Rs 10,290 crore in Q4 FY23. On a sequential basis, net profit also slipped by 43% from Rs 9,030 crore.
The company explained that the decline in net profit was primarily due to inventory losses in Q4, as opposed to inventory gains in Q3. 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.
IOCL's statement is supported by the fact that crude prices remained elevated in September and October 2023 (Q3 FY24), 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.
The company's core Gross Refining Margin (GRM) stood at $10.6 per barrel in Q4 FY24, compared to $20.1 per barrel in Q4 FY23 and $10 per barrel in Q3 FY24. This implies an inventory loss of $2.2 per barrel during the quarter.
Despite the decline in net profit, IOCL's GRMs for Q4 stood at $8.39 per barrel, which was 15% higher than the benchmark Singapore GRM of $7.32 per barrel. The OMC also reported a record high crude throughput for its refineries in FY24, reaching 73,308 million metric tonnes (MMT), a 1% increase compared to the previous year.