Discount on digital purchase: Will it impact the bottom-line of OMCs?
Dec 12: The 0.75% discount introduced by the government on fuel bought via digital methods at state-run pumps is more marketing strategy than masked subsidy. 8Even assuming 70% of transactions at the state owned outlets go digital, IOCL, BPCL and HPCL could see a worst-case earnings hit of 8-14% in FY18 if they are unable to pass on these costs 8IOC is likely to be IOCL would be the least affected as its marketing business forms only 18% of volumes as compared to 40-50% for BPCL/HPCL. 8Digital transactions will no doubt lead to greater transparency and efficiency. 8But the government order does not restrain the OMCs from passing the discount back to the customer as prices are now fully deregulated. 8In any case, the OMCs' cost plus pricing mechanism is highly non-transparent and it was none other than Subir Raha who pointed this out when ONGC had to provide heavy discounts on the crude sold to public sector refineries to make up for the under recoveries in the sale of petrol, diesel, SKO and LPG. Click on Reports to find out more on how the discount can impact the financials of the OMCs under different scenarios