GRAVY TRAIN

accounting for 47.5 per cent of the government’s all indirect taxes and 22 per cent of all tax revenues for the year. The recent surge in crude oil prices means oil companies would find it tough to increase retail fuel prices, hitting their profitability even as fuel demand may reduce. Analysts say the biggest fiscal impact will be felt in the current financial year.

“The bulk of the spike in crude oil prices occurred in the last two months and its impact will be felt in oil companies’ FY19 results. For FY18, companies are likely to pay hefty dividends,” said G Chokkalingam, founder & MD, Equinomics Research & Advisory Services. The combined dividend by non-energy PSUs was down 12.7 per cent in 2016-17 against a 120 per cent rise in dividend payout by energy companies during the period. In all, oil PSUs declared equity dividend worth ~257.4 billion in 2016-17, up from ~117 billion a year ago. In contrast, the dividend outgo from non-oil PSUs declined to ~304.2 billion from ~348.3 billion a year ago. Oil-marketing companies saw the biggest rise in dividend payout due to a sharp rise in their profitability in the last three years due to a decline in international oil prices and the end of subsidies on diesel and petrol. For example, IOC, the country’s top crude oil refiner and marketing company, paid ~85.3 billion by way of dividends in 2016-17, up from ~13 billion a year ago. Similarly, the payout by BPCL nearly quadrupled during the period to ~45.6 billion from ~11.6 billion. This cushioned the blow from a sharp cut in dividend payout from historically big dividend payers, such as Coal India, NMDC, State Bank of India, Bharat Heavy Electricals and SAIL. Many of these companies are still struggling with poor profitability making dividends from oil companies critical for the government to meet its fiscal targets. Shareholders of oil companies are now worried about the earnings trajectory in the near to medium term. Their stocks have witnessed a broad sell-off with the combined market capitalisation of top four oil PSUs down 17 per cent in 2018 so far against 2 per cent rise in the benchmark BSE Sensex during the period. HPCL has been the biggest loser and has lost nearly a third of its market capitalisation since the beginning of the current calendar year, followed by BPCL (down 28.4 per cent) and IOC (down 19.6 per cent). Analysts say shareholders’ concern has been heightened by a lack of a clear policy on fuel pricing and subsidy sharing between upstream companies (such as ONGC and Oil India), downstream companies (IOC, BPCL and HPCL) and the government. “While officially retail fuel prices change on a daily basis, there was no price revision for nearly two months in the runup to the Gujarat Assembly elections. Similarly, oil companies were not allowed to hike prices during the Karnataka elections but rather took a price cut on diesel and petrol despite a rise in crude oil prices,” said an analyst on condition of anonymity.