Indian oil marketing firms (OMCs) will report strong earnings in the ongoing fiscal year (FY26), boosted by reduced crude oil prices and reduction in LPG-associated losses, as per a new report.
HSBC Global Investment Research pointed out that OMCs now have a strong margin of safety from declining oil prices and a large capital spending plan, which "gives us confidence that a normative level of earnings (assumed) will still be maintained."
The drop in oil prices has supported auto fuel marketing margins, which stand between Rs 5-9 per litre, and is offering strong support to FY26 earnings.
Also, international LPG prices are down, leading to a 30-40 percent decrease in LPG losses per cylinder as against Q1 FY26.
"This will lead to a lower under-recovery for FY26. Though further details are pending on the pay-out mechanism of Rs 300 billion provided by the government towards reimbursing OMCs for LPG losses (yet to be accounted for), these trends are positing upside risks to earnings estimates," the report added.
While gross refining margins (GRMs) are still below multi-year averages, product cracks are robust and better than FY25 levels, which implies that refining profitability might strengthen this year, subject to the Russian crude mix not altering materially.
With the inventory losses already provided in Q1 FY26 and Brent prices ranging around $65-67 per barrel—pretty much in accordance with HSBC's FY26 predictions—the report observed that stability in oil prices mitigates the threat of additional inventory shocks. Lower oil prices also need to ease working capital needs, hence reducing borrowing requirements.
Quarterly, PAT increased 30 percent for HPCL and 90 percent for BPCL, and IOCL declined 20 percent because of inventory effects.
Although the Russian crude blend varies between the three OMCs, all three companies stated any change would be based solely on economic factors.
Discount on Russian crude has contracted to $1.5-2 per barrel, LPG losses have come down to Rs 80 billion in Q1 FY26 (from Rs 120 billion in Q4 FY25), and marketing margins have firmed up.
"We raise marketing margin estimates due to low crude prices resulting in increased earnings," the report concluded.
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