July 8 (Bloomberg) -- Indian Oil Corp., the nation’s biggest refiner, fell to its lowest in more than four years as the rupee’s decline to a record and crude’s increase raises its import bill and widens its loss.
Indian Oil fell as much as 3.9 percent to 216.45 rupees, the lowest since May 15, 2009, and traded down 3.5 percent to 217.30 rupees as of 10:56 a.m. in Mumbai. Hindustan Petroleum Corp., the third-biggest state refiner, dropped as much as 5.5 percent and Bharat Petroleum Corp., the second-biggest, fell 4.7 percent. The benchmark S&P BSE Sensex index declined 1.2 percent.
The Indian currency’s slump and crude’s rise is adding to Finance Minister Palaniappan Chidambaram’s worries as he struggles to narrow a budget deficit and revive an economy that’s growing at the slowest pace in a decade. The dual factors are negating Chidambaram’s attempt to reduce the gap between the cost of producing diesel, which accounts for about 50 percent of all oil products consumed in the country, and its selling price by increasing retail rates by half a rupee every month.
“In the quarter, the state refiners will be burdened with huge forex mark-to-market losses and that adds to earnings volatility,” said Mayur Patel, a Chennai-based analyst with Spark Capital Advisors, who rates Indian Oil shares a sell. “The lower rupee combined with rising crude prices is widening revenue losses and acting as a drag on their working capital.”
The government in January allowed the state-run refiners to raise diesel prices by as much as half a rupee every month till losses are wiped out. The rupee’s fall and crude’s increase have widened the deficit to 8.60 rupees a liter from 3.80 rupees a liter as of May 1, according to oil ministry data.
Indian Oil and its state-run rivals sell diesel, kerosene and cooking gas below cost to help curb inflation. They are partly compensated by the government in cash and producers including Oil & Natural Gas Corp. and Oil India Ltd. give discounts on crude they sell to the refiners.
India’s rupee today fell to a record after a U.S. jobs report July 5 showed companies hired more workers than economists forecast adding to the case for the Federal Reserve to reduce monetary stimulus and strengthening the dollar. The currency fell 1.5 percent to 61.1475 per dollar as of 9:30 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It dropped as low as 61.1550, passing the previous record of 60.7650 on June 26.
Every one-rupee depreciation in the Indian currency against the dollar widens Indian Oil’s revenue loss from selling fuels below cost by 48 billion rupees a year, finance director P.K. Goyal said June 24. Indian Oil prefers an exchange rate of around 54 to 55 rupees per dollar, he said.
Goyal didn’t answer two calls to his mobile phone today seeking comment.
Indian Oil has raised diesel prices six times since January, while gasoline prices have increased three times since June, according to Indian Oil’s website.
Brent for August settlement gained as much as 32 cents, or 0.3 percent, to $108.04 a barrel on the London-based ICE Futures Europe exchange. It has increased in five of the past six days as protests in Egypt fanned concern that Middle East oil supply may be disrupted.
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