OMCs’ earnings seen weak as Q1FY27 under-recovery bites: Report

Oil marketing companies are likely to remain under pressure till FY27 as Q1FY27 under-recovery weighs on profitability and the risk of excise duty rollback remains, domestic brokerage firm Prabhudas Leeladhar said in a recent research report.

Near-term sentiment has improved after Brent crude fell below USD80/bbl on the US-Iran ceasefire, but continued price volatility and inventory rebuilding are expected to limit further downside, keeping margins tight, the firm said.

The brokerage firm said Q1FY27 is expected to weigh sharply on profitability despite the recent relief. “We expect an under-recovery of Rs7. 0/litre and Rs10/litre in Q1FY27, after taking into account the Rs10/litre excise cut and capping of cracks for MS and HSD at USD10/bbl and USD15/bbl respectively,” the report noted. With a loss of around Rs.500/cyl for FY27 Q1, LPG continues to be the biggest pain point. According to the Q4FY26 Concol Commentary cited by PL, OMCs expect Saudi CP prices to increase by 47 per cent for Q1FY27 in April 2026, with LPG reporting an under-recovery in the range of Rs.610-670/cyl/cyl in May 2026. disruption

A rollback of excise duty is a key risk to companies’ earnings, the brokerage said. “The overhang of the rollback in excise duty cut of Rs 10/litre is a major pressure point for OMCs, though the rollback is expected to be phased,” PL Research said. The excise cut was introduced as a crisis management measure rather than a permanent change, and the government may gradually roll back the benefits as crude moderation and retail price hikes take effect. The government continues to bear a revenue impact of ~INR1700bn per year from the excise cut.

On crude, brokerages expect near-term declines but volatility will continue. “If the US-Iran situation progresses positively and full normalcy is restored in 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 optimal resource levels, which will create increased demand in the market.”

Iranian oil exports are expected to resume immediately, but countries that used strategic petroleum reserves during the conflict are likely to begin replenishing stocks, supporting prices.