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Independent Refiners - Petrol prices hiked
• Petrol prices hiked: The SOE R&M companies hiked petrol prices by
Rs2.52-Rs2.55/lt (4%) to offset a continued rise in crude prices. Prior to
the hike, the R&M companies were making losses of over Rs2.2/lt on
petrol sales, over the last month. Based on January average prices, we
estimate a further hike of Rs0.4/lt is needed.
• Petrol de-control continues to work: The hikes demonstrate that petrol
de-control continues to work, with prices rising ~Rs5.5/lt over the past
month.
• But diesel remains problematic: The R&M companies are currently
losing Rs7.7/lt on diesel, by our estimates. With the EGoM meeting on
diesel pricing indefinitely deferred, and statements from the Oil Minister
saying that the government would attempt to keep diesel prices stable for
consumers in light of high inflation suggest that further reform on diesel
pricing is unlikely until after the state assembly elections scheduled for
April-May.
• Continue to stay cautious: At current levels, we estimate a total fiscal
year subsidy of over Rs700bn (vs. Rs460bn in FY10) - as such, there is
significant downside risk to our estimate of Rs40bn as downstream share
in the subsidy sharing arrangement. We reiterate our cautious stance on
the PSU R&M companies, as subsidy losses mount with higher crude
prices.
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