Oil marketing companies (OMCs) are expected to face significant pressure on profitability in the first quarter of FY27 due to under-recoveries on fuel sales, according to a recent research report by domestic brokerage firm Prabhudas Lilladher. The report highlights that near-term sentiment improved after Brent crude fell below USD 80 per barrel following the US-Iran ceasefire, but persistent volatility and inventory rebuilding are expected to limit further downside, keeping margins compressed.
Under-Recovery Estimates for Q1FY27
The brokerage firm projects an under-recovery of Rs 7.0 per litre for petrol (MS) and Rs 10 per litre for diesel (HSD) in Q1FY27, after accounting for a Rs 10 per litre excise duty cut and capping of cracks at USD 10 per barrel and USD 15 per barrel, respectively. LPG continues to be the biggest pain point, with estimated losses of around Rs 500 per cylinder for the quarter. According to Q4FY26 earnings call commentary cited by Prabhudas Lilladher, OMCs reported LPG under-recoveries in the range of Rs 610-670 per cylinder in May 2026, compared to Rs 170 per cylinder in April 2026. Saudi CP prices for Q1FY27 are expected to increase by 47 per cent quarter-on-quarter, driven by supply constraints due to West Asia disruptions.
Excise Duty Rollback Risk
The report identifies the potential rollback of excise duty cuts as a key risk for OMC earnings. “The overhang of a rollback in excise duty cuts of Rs 10 per litre remains a key pressure point for OMCs, although the rollback is expected to happen in a phased manner,” Prabhudas Lilladher Research said. The excise cut was introduced as a crisis management measure rather than a permanent change, and with crude prices moderating and retail price hikes implemented, the government may gradually withdraw the benefit. The government currently bears a revenue impact of Rs 1,700 billion per year from the excise cut.
Crude Oil Price Outlook
On crude oil, 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 strategic petroleum reserves (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 SPRs during the conflict are likely to begin replenishing stocks, providing support to prices.
