OMC Earnings Under Pressure: Q1FY27 Under-Recoveries to Impact Profits

Oil Marketing Companies (OMCs) are bracing for a challenging financial period as significant under-recoveries in the first quarter of FY27 threaten to squeeze profitability. Despite recent relief in global crude prices, structural risks and government policy shifts continue to cloud the outlook for India's fuel distributors.

The Impact of Q1FY27 Under-Recoveries

According to a research report by domestic brokerage firm Prabhudas Lilladher (PL), the profitability of OMCs is expected to face a sharp decline in Q1FY27. The brokerage anticipates significant under-recoveries for key fuels: approximately ₹7.0/litre for Motor Spirit (MS) and ₹10/litre for High-Speed Diesel (HSD).

These projections account for a ₹10/litre excise duty cut and a capping of cracks at USD 10/bbl for MS and USD 15/bbl for HSD. While the recent drop in Brent crude below USD 80/bbl—driven by a US-Iran ceasefire—has provided some near-term sentiment relief, these underlying recovery gaps remain a major headwind for bottom lines.

LPG: The Primary Pain Point for OMCs

Liquefied Petroleum Gas (LPG) remains the most significant pressure point for the sector. The brokerage estimates that LPG under-recoveries could reach approximately ₹500 per cylinder in Q1FY27.

This follows a volatile trend seen in previous quarters; for instance, OMCs reported LPG under-recoveries in the range of ₹610–₹670 per cylinder in May 2026, a massive jump from the ₹170 per cylinder recorded in April 2026. Adding to the pressure, Saudi CP prices for Q1FY27 are expected to surge by 47% quarter-on-quarter (QoQ) due to supply constraints stemming from disruptions in West Asia.

The Excise Duty Rollback Risk

A major overhang for OMC earnings is the potential rollback of the ₹10/litre excise duty cut. Originally introduced as a crisis management measure, the excise cut has resulted in a revenue impact of approximately ₹1,700 billion per year for the government.

As crude oil prices moderate and retail price hikes are implemented, there is a growing possibility that the government may begin withdrawing these benefits in a phased manner. Any sudden or aggressive rollback of these tax cuts would serve as a direct hit to the margins of fuel distributors.

Ketidaktentuan Minyak Mentah dan Pembinaan Semula Inventori

Walaupun situasi geopolitik yang melibatkan Iran dan AS menunjukkan potensi penurunan harga minyak mentah jika keadaan kembali normal di Selat Hormuz, pihak broker memberi amaran tentang ketidaktentuan yang berterusan.

Pasaran dijangka menghadapi tekanan harga ke atas apabila negara-negara mula mengisi semula Rizab Petroleum Strategik (SPR) mereka. Negara-negara yang menggunakan rizab mereka semasa konflik baru-baru ini kini dijangka membina semula stok untuk mengekalkan tahap sumber yang optimum, sekali gus mewujudkan permintaan tambahan yang boleh menghalang penurunan harga minyak mentah yang berpanjangan.

Ringkasan Utama

  • Kurang Pulangan yang Ketara: OMC menghadapi unjuran kurang pulangan sebanyak ₹7/liter bagi MS dan ₹10/liter bagi HSD pada Q1FY27, dengan kerugian LPG dianggarkan sebanyak ₹500/silinder.
  • Ketidakpastian Percukaian: Potensi pembatalan berperingkat bagi pemotongan duti eksais sebanyak ₹10/liter kekal sebagai faktor risiko utama bagi kestabilan pendapatan jangka panjang.
  • Lonjakan Harga Didorong oleh Bekalan: Unjuran peningkatan 47% QoQ dalam harga Saudi CP dan pembinaan semula inventori global dijangka akan mengekalkan ketidaktentuan minyak mentah pada tahap yang tinggi.