OMC Earnings Face Pressure Due to Q1FY27 Under-Recoveries

Oil Marketing Companies (OMCs) in India are bracing for a challenging fiscal period as significant under-recoveries are expected to squeeze profitability in the coming quarters. While recent drops in Brent crude prices have offered some temporary relief, structural headwinds and regulatory risks continue to cloud the outlook for the sector.

The Impact of Under-Recoveries in Q1FY27

According to a recent research report by domestic brokerage firm Prabhudas Lilladher (PL), the profitability of OMCs is expected to face a sharp decline in the first quarter of FY27. The report highlights significant under-recoveries that are set to weigh heavily on margins. Specifically, the brokerage expects under-recoveries of ₹7/ltr for Motor Spirit (MS) and ₹10/ltr for High-Speed Diesel (HSD). These projections account for a ₹10/ltr excise duty cut and a capping of cracks at USD 10/bbl for MS and USD 15/bbl for HSD.

LPG remains a primary area of concern for the industry. Losses in the LPG segment are estimated to reach approximately ₹500/cylinder in Q1FY27. This follows a period of extreme volatility where LPG under-recoveries climbed from roughly ₹170/cylinder in April 2026 to between ₹610–₹670/cylinder in May 2026. Furthermore, Saudi CP prices for Q1FY27 are projected to surge by 47% quarter-on-quarter, driven by supply constraints resulting from West Asian disruptions.

The Excise Duty Rollback Risk

A significant overhang for OMCs is the potential rollback of the ₹10/ltr excise duty cut. This reduction was originally implemented as a crisis management measure rather than a permanent fiscal policy. With crude oil prices moderating and the government implementing retail price hikes, there is growing speculation that the government may begin withdrawing 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 a total sudden reversal is unlikely, the brokerage anticipates that any rollback of these duty cuts will likely happen in a phased manner, creating persistent pressure on the earnings of oil marketers.

Crude Oil Volatility and Inventory Dynamics

Sentimen sekeliling minyak mentah telah menunjukkan sedikit peningkatan susulan gencatan senjata AS-Iran, yang membantu minyak mentah Brent jatuh di bawah paras USD 80/bbl. Walau bagaimanapun, firma broker memberi amaran bahawa ini bukanlah trend yang muktamad. Walaupun penyambungan semula eksport minyak Iran dan pemulihan keadaan di Selat Hormuz boleh melembutkan lagi harga, faktor-faktor dari segi permintaan kekal kukuh.

Laporan tersebut menyatakan bahawa apabila konflik global stabil, negara-negara yang menggunakan Rizab Petroleum Strategik (SPR) mereka semasa gangguan baru-baru ini dijangka akan mula mengisi semula stok mereka. Pembinaan semula inventori secara besar-besaran ini berkemungkinan akan mewujudkan permintaan tambahan, menyediakan lantai bagi harga minyak mentah dan memastikan turun naik pasaran kekal tinggi, yang seterusnya mengehadkan penyusutan margin OMC.

Ringkasan Utama

  • Kerugian Besar Dijangkakan: OMC menghadapi anggaran kekurangan kutipan sebanyak ₹7/liter untuk MS dan ₹10/liter untuk HSD, di samping kerugian LPG yang besar sebanyak hampir ₹500/silinder pada Q1FY27.
  • Cabaran Kawal Selia: Potensi pembatalan secara berperingkat terhadap pemotongan duti eksais sebanyak ₹10/liter kekal sebagai faktor risiko utama bagi pendapatan jangka panjang sektor ini.
  • Turun Naik Bekalan-Permintaan: Walaupun pengurangan ketegangan geopolitik mungkin menurunkan harga, pengisian semula inventori global (pembinaan semula SPR) dijangka akan menyokong harga minyak mentah dan mengekalkan turun naik margin.