Oil marketing companies are likely to stay under pressure through FY27 as Q1FY27 under-recoveries will weigh on profitability and the risk of excise duty rollback remains, domestic brokerage firm Prabhudas Lilladher said in a recent research report.
The firm said that the near-term sentiment has improved after Brent crude dropped below USD80/bbl on the US-Iran ceasefire, but persistent volatility in prices and inventory rebuilding are expected to limit further downside, keeping margins compressed.
The brokerage firm said Q1FY27 is expected to weigh sharply on profitability despite the recent respite. “We expect an under-recovery of Rs7.0/ltr and Rs10/ltr in Q1FY27, after considering a Rs10/ltr excise cut and capping of cracks at USD10/bbl and USD15/bbl for MS and HSD respectively,” the report noted. LPG continues to remain the biggest pain point, with losses estimated at around Rs500/cyl for Q1FY27. As per Q4FY26 concall commentary cited by PL, OMCs reported LPG under-recoveries in the range of Rs610-670/cyl in May 2026 vs ~Rs170/cyl in April 2026. Saudi CP prices for Q1FY27 are expected to increase by 47 per cent QoQ, driven by supply constraints due to the West Asia disruption.
The brokerage said the rollback of excise duty remains a key risk for earnings of the companies. “The overhang of a rollback in excise duty cuts of Rs10/ltr remains a key pressure point for OMCs, although the rollback is expected to happen in a phased manner,” PL Research said. The excise cut was introduced as a crisis management measure rather than a permanent change, and with crude moderating and retail price hikes implemented, the government may gradually withdraw the benefit. The government continues to bear a revenue impact of ~INR1700bn per year from the excise cut.
On crude, the brokerage expects near-term decline but volatility to persist. “If the US-Iran situation progresses positively and full normalcy is restored at the Strait of Hormuz, crude prices may soften further. However, we expect crude oil prices to rise again as countries are expected to replenish inventories and SPRs to maintain optimum resource levels, creating incremental demand in the market,” the report said.
Iranian oil exports are expected to resume immediately, but countries that utilised strategic petroleum reserves during the conflict are likely to begin replenishing stocks, providing support to prices.
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