25% petrol, diesel price hike inevitable choice for OMCs

New Delhi: Coordinated action, including a cut in excise duty, reduction in value added tax (VAT) coupled with a hike in retail selling price, are required to manage the rising crude prices as oil marketing companies (OMCs) have been already operating on a wafer thin margins, brokerage house Emkay Global Financial Services said in a report.

On an average, petrol-diesel marketing margins are at negative Rs6.5-9.1 per litre and the current skyrocketing global crude prices - $130 per barrel - calls for an eventual hike of Rs28-30 litre on fuels, said the brokerage report.

Ongoing hostilities between Russia and Ukraine, as well as the lack of fresh supplies, have pushed crude oil price to a 14-year high of $130 per barrel on Monday.

"We are raising our FY23/24 Brent price estimate to $100/80 per barrel from $80/75, while retaining our long-term assumption at $75/bbl. FY22 average is expected to be $80/bbl."

Keeping the elevated crude prices in mind, the brokerage gave a 'Buy' call for ONGC shares with a target price of Rs 230. The scrip is currently trading at Rs 172.

For Oil India too, the brokerage recommended investors 'Buy' with a target price of Rs 335. Its current share price is at Rs 235. Besides, GAIL would also benefit from higher oil prices, it added.