Shares of oil marketing companies drop up to 13%

Shares of oil marketing companies -- Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd -- on Wednesday plunged up to 13 per cent, a day after hike in excise duty on petrol and diesel.

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Hindustan Petroleum Corporation Ltd (HPCL) shares tanked 13 per cent, Bharat Petroleum Corporation Ltd (BPCL) plunged 9.99 per cent and Indian Oil Corporation (IOC) dropped 7.49 per cent on the BSE.

Late on Tuesday evening, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains arising from international oil prices falling to a two-decade low.

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The government will gain close to Rs 1.6 lakh crore in additional revenues this fiscal from a record increase in excise duty on petrol and diesel, that will help make up for revenue it lost in a slowing economy and shutting down of businesses due to coronavirus led lockdown.

State-owned fuel retailing companies, IOC, BPCL and HPCL had frozen petrol and diesel prices since March 16 and will now set off gains they accrued from continuing drop in international oil prices against the excise duty hike.

Officials said normally retail prices would have changed with any revision in taxes but like March 14, there is no change as the excise duty hike is being adjusted against the gains consumers should have got from Brent crude oil dipping to about USD 18 per barrel - the lowest since 1999.

Commenting on the excise duty hike, Vikas Halan, Senior Vice President, Corporate Finance, Moody's Investors Service, said: "Government of India's increase in petrol and diesel taxes by USD 21/barrel and USD 27/ barrel respectively will result in government's tax collection increasing by about USD 21 billion, if the tax hike is maintained for full year.

This reinforces the importance of oil marketing companies to the Government of India and validates the support incorporated in our credit assessment of these companies. The tax hike could result in higher working capital outflow for the oil marketing companies, which will partly offset the working capital savings from lower inventory costs."

According to a note by Emkay Global Financial Services, "the excise duty hike though on expected lines could have been taken once demand had fully recovered. So long volumes continue to be low, OMCs net earnings impact would now be negative. Outlook hence depends on how quickly lockdown is lifted."