Rupee fall hardens squeeze for fuel, CNG retailers; buoys producers
NEW DELHI: The rupee’s sharp fall against the Greenback partially erases the benefit of moderation in crude prices in the absence of pass-through for refiner-retailers such as IndianOil, but will lift the top and bottom lines of producers such as ONGC. Operations will become costlier for CNG (compressed natural gas) players as the rupee exchange rate has 50% bearing on pre-tax costs. But they may not be able to pass on the impact fully to avoid jeopardising future projects by losing consumer appeal as the gap with petrol shrinks.
This will tell on their margins. IndianOil executives said every Re 1 change in the dollar’s exchange rate impacts pump prices by an equal amount.
This will erase part of the positive impact from crude’s fall and a reduction in ‘cracks’, or the difference between crude and product prices. A Citi report said the cracks on petrol and diesel were down by $40-50 per barrel from a month ago. This reduced under-recoveries, offsetting the drop in refining margins.
A weak rupee amid elevated oil prices is a positive for ONGC — and other producers. A fall of Re 1 in dollar exchange rate is estimated to buoy ONGC’s top line by Rs 1,200 crore and bottom line by Rs 600 crore annually. But it also raises procurement cost by Rs 300 crore, executives said. Midstream companies such as GAIL may not see a noticeable impact as they can pass on the higher cost to consumers. But there will also be a risk of losing volumes if higher prices prompt industrial consumers to cut back on consumption.
GAIL executives say this is unlikely amid the current growth momentum. A weak rupee will, however, make servicing of foreign loans costlier and affect hiring or procurement