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

Aunque los recientes acontecimientos geopolíticos, como el alto el fuego entre EE. UU. e Irán, ayudaron a que el crudo Brent cayera por debajo de los 80 USD/barril, la correduría advierte que el sentimiento a corto plazo sigue siendo frágil. Si bien se espera que las exportaciones de petróleo iraní se reanuden, lo que podría suavizar los precios, hay una fuerza de contrapartida en juego: la reconstrucción estratégica de inventarios.

A medida que los países se preparan para reponer sus Reservas Estratégicas de Petróleo (SPR) y mantener niveles óptimos de recursos tras haberlos utilizado durante conflictos recientes, se espera que entre una demanda incremental al mercado. Es probable que este ciclo de reposición de inventarios mantenga la volatilidad de los precios del petróleo crudo, impidiendo una tendencia a la baja sostenida y manteniendo los márgenes comprimidos para los refinadores y comercializadores indios.

Conclusiones clave

  • Déficit en la recuperación de combustibles: Las OMCs se enfrentan a pérdidas proyectadas de ₹7/litro para MS y ₹10/litro para HSD en el Q1FY27, con pérdidas de GLP estimadas en ₹500/cilindro.
  • Riesgos regulatorios: La posible eliminación gradual del recorte de los impuestos especiales de ₹10/litro representa una amenaza significativa para la estabilidad de los resultados finales.
  • Dinámica del crudo: A pesar de las caídas temporales de los precios, se espera que la volatilidad persista a medida que la demanda mundial aumente debido a la reposición de las reservas estratégicas de petróleo.