OMCs Face Near-Term Pressure, Long-Term Tailwinds from Crude and LPG Relief

Shares of India’s state-run oil marketing companies (OMCs) have fallen 6–8% over the past month, driven largely by volatility in diesel marketing margins. However, analysts argue the correction is sentiment-driven, as underlying fundamentals—lower crude prices, reduced LPG under-recoveries, and improving integrated margins—remain favourable. Valuations are now below long-term averages, though policy risk continues to loom large. Diesel marketing margins slipped to an 18‑month low (–₹0.3/litre) in late November due to US sanctions on Russian firms disrupting diesel exports. This sparked a sharp correction in OMC stocks, even though the weakness is expected to be temporary. Brent crude at ~$62/bbl is well below FY25’s $79/bbl average, supporting refining margins and reducing LPG under-recoveries. FY26 LPG losses are projected at ₹16,000 crore—less than half of FY25’s ₹40,000 crore. Q2FY26 under-recoveries fell to ₹4,500 crore from ₹8,000 crore YoY. Brokerages like Antique and ICICI Securities remain bullish. They’ve raised FY26 EBITDA estimates for

, L , and IOCL by 7–10%. Combined EBITDA is expected to grow 66% YoY in FY26 after a 46% decline in FY25. Integrated margins (refining + marketing) are expected to remain steady at ₹8–10/litre in H2FY26. OMCs have begun receiving reimbursements for past LPG losses—₹30,000 crore approved, paid over 12 months. This adds ₹12,500 crore of incremental cash inflow in the last five months of FY26, strengthening liquidity. BPCL, HPCL, and IOCL trade at 5.6x, 5.8x, and 6.5x FY26 EV/EBITDA—below their 10‑year averages. Key risks: - Government cutting retail fuel prices if crude stays soft - Rupee depreciation - Russian crude supply disruptions - Continued marketing margin volatility