OMC Earnings Under Pressure Due to Q1FY27 Under-Recoveries

Oil Marketing Companies (OMCs) in India are facing a challenging outlook through the 2027 fiscal year, with profitability expected to be squeezed by significant under-recoveries. Despite a recent uptick in sentiment due to cooling crude prices, domestic brokerage Prabhudas Lilladher warns that structural and regulatory headwinds will continue to weigh on margins.

The Impact of Under-Recoveries and LPG Losses

The primary concern for OMCs lies in the projected under-recoveries for Q1FY27. According to the Prabhudas Lilladher report, the industry is expected to face 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 duty cut and a capping of cracks at USD 10/bbl for MS and USD 15/bbl for HSD.

Liquefied Petroleum Gas (LPG) remains the most significant pain point for the sector. Losses for LPG are estimated to reach approximately ₹500 per cylinder in Q1FY27. This follows a period of intense volatility; data shows that while LPG under-recoveries were around ₹170/cylinder in April 2026, they surged to a range of ₹610–₹670/cylinder by May 2026. Adding to this pressure, Saudi CP prices are expected to jump by 47% quarter-on-quarter for Q1FY27 due to supply constraints stemming from West Asian disruptions.

Regulatory Risks: The Excise Duty Rollback

A major overhang for the earnings of OMCs is the potential rollback of excise duty cuts. The ₹10/litre excise cut was initially introduced as a crisis management measure rather than a permanent fiscal policy. As crude oil prices moderate and retail price hikes are implemented, there is a growing possibility that the government may gradually withdraw these benefits.

The fiscal implications for the government are substantial, with the excise cut currently resulting in a revenue impact of approximately ₹1,700 billion per year. While the brokerage expects any rollback to occur in a phased manner, the mere possibility of this move continues to act as a pressure point for OMC stock valuations and bottom-line stability.

Crude Oil Volatility and Inventory Rebuilding

El sentimiento respecto a los precios del petróleo crudo sigue siendo un tira y afloja entre el alivio geopolítico y la reposición por el lado de la demanda. Si bien el alto el fuego entre EE. UU. e Irán y la posibilidad de normalidad en el Estrecho de Ormuz han ayudado a que el crudo Brent caiga por debajo de los 80 USD/barril, los expertos advierten que es poco probable que los precios se mantengan bajos por mucho tiempo.

El informe destaca que, a medida que los países comiencen a reponer sus Reservas Estratégicas de Petróleo (SPR) y sus inventarios generales para mantener niveles óptimos de recursos, es probable que el aumento de la demanda impulse nuevamente los precios al alza. Aunque se espera que las exportaciones de petróleo iraní se reanuden, el cambio global hacia la reconstrucción de existencias actuará como un suelo para los precios, evitando una tendencia a la baja significativa en los costos del crudo y manteniendo vivos los riesgos de compresión de márgenes para las refinerías indias.

Conclusiones clave

  • Presión sobre la rentabilidad: Las OMCs enfrentan subrecuperaciones estimadas de ₹7/litro para MS y ₹10/litro para HSD en el Q1FY27, con pérdidas proyectadas de LPG de ₹500/cilindro.
  • Incertidumbre fiscal: La posible eliminación gradual del recorte del impuesto especial de ₹10/litro sigue siendo un factor de riesgo crítico para las ganancias a largo plazo de las OMCs.
  • Dinámica del crudo: Si bien las tensiones geopolíticas se han relajado temporalmente, se espera que la reconstrucción de los inventarios globales y un aumento del 47% en los precios del CP saudí mantengan la volatilidad del mercado.