New Delhi, Aug 27 The Indian oil marketing companies (OMCs) are set to clock strong earnings in current fiscal (FY26) due to lower oil prices and reduced LPG losses, according to a new report.
HSBC Global Investment Research believes that OMCs now have a large margin of safety owing to low oil price and a large capex plan which “gives us confidence that a normative level of earnings (assumed) will still be maintained”.
Lower oil price is supportive of strong auto fuel marketing margins (currently Rs 5-9 per litre) and this augurs well for the FY26 earnings.
In addition, global LPG prices have also decreased, leading to 30-40 per cent reduction in LPG losses per cylinder currently versus Q1 FY26.
“This will result in a lower under-recovery for FY26. While more details are awaited on the pay-out mechanism of Rs 300 billion provisioned by the government towards compensating OMCs for LPG losses (yet to account), these trends present upside risks to earnings forecasts,” the report mentioned.
Gross refining margins (GRMs) continue to trend lower than long-term averages, but product cracks remain healthy and higher than FY25. This indicates refining profitability could be better than last year if Russian crude mix does not alter too much.
With inventory losses already booked in Q1 FY26, and Brent prices $65-67 per barrel (largely in line with HSBC forecasts for FY26), with stable oil prices, shocks from inventory losses are less likely. Lower oil prices will also reduce the working capital requirement, thus reducing the borrowing needs, the report mentioned.
On the quarterly basis (Q1), PAT increased 30 per cent/90 per cent for HPCL/BPCL while was lower by 20 per cent for IOCL due to inventory impact.
Russian crude mix varies for the three OMCs, but all of them indicated any changes to the mix will solely be driven by economic considerations, said the report.
Russian crude discount has narrowed to $1.5-2 per barrel and LPG losses decreased to Rs 80 billion in Q1 FY26 (compared to Rs 120 billion in Q4 FY25) and marketing margins improved.
“We increase marketing margin estimates given low crude oil prices leading to higher earnings,” the report said.
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