New Delhi [India], August 26 : The LPG under-recovery for Oil Marketing Companies (OMCs) witnessed a sharp decline in the first quarter of FY26, narrowing by nearly 35 per cent quarter-on-quarter, according to a report by Care Edge Ratings.
The report highlighted that this reduction came mainly due to the price hike announced in April 2025, where LPG prices were raised by Rs 50 per 14.2 kg cylinder, along with some moderation in sourcing costs.
The report stated "LPG under-recovery of Oil Marketing Companies (OMCs) for the first quarter of FY26 witnessed a sharp reduction of approx. 35 per cent q-o-q".
LPG under-recovery refers to the financial loss that Oil Marketing Companies (OMCs) in India incur when the cost of importing or sourcing Liquefied Petroleum Gas (LPG) is higher than the retail price at which it is sold to consumers.
Despite the improvement, OMCs still faced a significant financial burden. In Q1FY26, LPG under-recoveries stood at approximately Rs 7,940 crore, lower than Rs 12,110 crore recorded in Q4FY25.
The gap, however, continues to persist due to the difference between the cost of sourcing LPG and its revised retail price.
As a result, the cumulative LPG under-recovery of OMCs reached around Rs 49,210 crore by June 30, 2025, compared to Rs 41,270 crore as of March 31, 2025.
This reflects that while the quarterly losses narrowed, the overall under-recovery continued to mount due to sustained mismatches between input costs and retail realizations.
In response to this growing challenge, the Union Cabinet recently approved a large compensation package of Rs 30,000 crore for the OMCs. This amount will be disbursed in twelve instalments to help offset the financial pressure.
Additionally, in April 2025, the Government of India raised the excise duty on fuel sales by Rs 2 per litre, which will now be passed on to OMCs as part of the compensation mechanism for LPG under-recoveries.
The report further noted that while this compensation package will address a substantial part of the past under-recoveries, the pace of fresh accumulation is expected to slow down in the coming quarters, supported by favourable trends in global procurement prices.
It also highlighted that though LPG under-recoveries continue to put stress on OMC profitability, strong marketing margins from petrol and diesel sales have provided some cushion, partially balancing the financial impact.
Overall, the report concluded that a combination of government support through compensation, rangebound crude oil prices, stable domestic retail fuel prices, and potentially lower LPG sourcing costs paints a relatively positive outlook for the OMCs going forward.
This easing of LPG under-recoveries, coupled with policy support, is expected to provide much-needed relief to the companies while ensuring energy supplies remain stable for consumers.
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