OMC Earnings to Face Pressure Due to Q1FY27 Under-Recoveries

Oil Marketing Companies (OMCs) in India are bracing for a challenging period as profitability concerns loom large for the upcoming fiscal year. According to a recent research report by brokerage firm Prabhudas Lilladher, significant under-recoveries in Q1FY27 and the looming risk of excise duty rollbacks are set to weigh heavily on the sector's earnings.

Significant Under-Recoveries Expected in Q1FY27

The primary driver of the anticipated earnings slump is the projected under-recovery in fuel prices. Prabhudas Lilladher expects substantial losses in the first quarter of FY27. Specifically, the report anticipates under-recoveries of ₹7/litre for Motor Spirit (MS) and ₹10/litre for High-Speed Diesel (HSD). These figures take into account a ₹10/litre excise cut and a cap on cracks at USD 10/bbl for MS and USD 15/bbl for HSD.

Liquefied Petroleum Gas (LPG) is identified as the most critical pain point for OMCs. Losses for LPG are estimated to reach approximately ₹500 per cylinder in Q1FY27. This follows a volatile trend observed in previous quarters; for instance, LPG under-recoveries jumped from roughly ₹170/cyl in April 2026 to between ₹610–₹670/cyl in May 2026. Adding to this pressure, Saudi CP prices are expected to surge by 47% quarter-on-quarter (QoQ) for Q1FY27 due to supply constraints caused by disruptions in West Asia.

The Excise Duty Rollback Risk

A major overhang for the sector is the potential rollback of excise duty cuts. The ₹10/litre excise cut was originally implemented as a crisis management measure rather than a permanent policy. With crude oil prices moderating and retail price hikes already being implemented, there is a growing possibility that the government may phase out these benefits to recoup lost revenue.

Currently, the government bears a revenue impact of approximately ₹1,700 billion per year due to these excise cuts. While any rollback is expected to happen in a phased manner, the mere possibility of this move remains a significant pressure point for the earnings outlook of OMCs.

Crude Oil Volatility and Inventory Rebuilding

While recent geopolitical developments, such as the US-Iran ceasefire, helped Brent crude drop below USD 80/bbl, the brokerage warns that near-term sentiment remains fragile. While Iranian oil exports are expected to resume, which could soften prices, a counter-force is at play: strategic inventory rebuilding.

As countries move to replenish their Strategic Petroleum Reserves (SPRs) and maintain optimum resource levels after utilizing them during recent conflicts, incremental demand is expected to enter the market. This cycle of inventory replenishment is likely to keep crude oil prices volatile, preventing a sustained downward trend and keeping margins compressed for Indian refiners and marketers.

Key Takeaways

  • Fuel Under-recoveries: OMCs face projected losses of ₹7/litre for MS and ₹10/litre for HSD in Q1FY27, with LPG losses estimated at ₹500/cyl.
  • Regulatory Risks: The potential phased rollback of the ₹10/litre excise duty cut poses a significant threat to bottom-line stability.
  • Crude Dynamics: Despite temporary price dips, volatility is expected to persist as global demand rises due to the replenishment of strategic petroleum reserves.