In a recent update, the Economic Coordination Committee (ECC) has adjusted the profit margins for oil marketing companies, increasing them by 31% to PKR 7.87 per liter from the previous margin of PKR 6.00 per liter. This adjustment aims to help these companies cope with the rising costs of conducting business in the face of increasing inflation. The margin increase will be implemented gradually in four bi-weekly installments of PKR 0.47 per liter each.

This upward revision in margins will provide support to the earnings of these companies, especially during a period of subdued sales volumes, rising working capital costs due to elevated oil prices and interest rates. It’s worth noting that margin revisions for oil marketing companies are typically tied to the Consumer Price Index (CPI), but there can be delays in the adjustment process during negotiations.

Last year, there was a higher-than-expected increase in margins. As a result, margins for FY24 were projected at PKR 6.9 per liter. This recent increase is therefore a positive development for the earnings outlook of oil marketing companies.

The combination of a high policy rate and soaring international oil prices has put pressure on OMCs, especially smaller ones, to meet their working capital needs. This adjustment should provide some relief in that regard.

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