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

Sentimen mengenai harga minyak mentah kekal sebagai tarik-tali antara kelegaan geopolitik dan pengisian semula daripada pihak permintaan. Walaupun gencatan senjata AS-Iran dan potensi pemulihan keadaan di Selat Hormuz telah membantu minyak mentah Brent jatuh di bawah USD 80/bbl, pakar memberi amaran bahawa harga tidak mungkin kekal rendah untuk tempoh yang lama.

Laporan tersebut menekankan bahawa apabila negara-negara mula mengisi semula Rizab Petroleum Strategik (SPR) dan inventori am mereka untuk mengekalkan tahap sumber yang optimum, permintaan tambahan berkemungkinan akan melonjakkan semula harga. Walaupun eksport minyak Iran dijangka akan disambung semula, peralihan global ke arah membina semula stok akan bertindak sebagai lantai harga, menghalang trend penurunan ketara dalam kos minyak mentah dan mengekalkan risiko pengecilan margin bagi penapis minyak India.

Ringkasan Utama

  • Penyempitan Keuntungan: OMC menghadapi anggaran kekurangan pemulihan sebanyak ₹7/liter untuk MS dan ₹10/liter untuk HSD pada Q1FY27, dengan kerugian LPG diunjurkan sebanyak ₹500/silinder.
  • Ketidakpastian Fiskal: Potensi pembatalan berperingkat bagi pemotongan duti eksais sebanyak ₹10/liter kekal sebagai faktor risiko kritikal bagi pendapatan jangka panjang OMC.
  • Dinamik Minyak Mentah: Walaupun ketegangan geopolitik telah reda buat sementara waktu, pembinaan semula inventori global dan kenaikan 47% dalam harga CP Arab Saudi dijangka akan mengekalkan turun naik pasaran.