OMCs may see sharp earnings drop if fuel prices stay frozen: Ambit

markets

• OMCs' earnings may drop if crude prices stay high and unchanged
• HPCL, BPCL, IOC could see sharp EBITDA declines in FY27
• Upstream firms like ONGC may benefit from higher crude prices

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Oil marketing companies could face significant earnings pressure if crude oil prices remain elevated while retail fuel prices stay unchanged, Ambit Stock Broking said, outlining a worst-case scenario.

The brokerage said FY27 EBITDA could see a sharp decline, with HPCL slipping to a loss of Rs 6700 crore from Rs 25600 crore, BPCL falling to Rs 700 crore from Rs 34100 crore and IOC dropping to Rs 6900 crore from Rs 58000 crore. The decline would be driven by negative auto-fuel margins of about Rs 2.7 per liter under stable pump prices.

However, Ambit said such losses are unlikely to persist beyond two quarters, as prolonged under-recoveries typically trigger government support through excise duty cuts or fuel price hikes. Even if crude remains near $80 per barrel for six months, it expects at least Rs 6 per liter margin support.

The brokerage added that recent LPG price hikes could reduce reliance on government support. OMC stocks have already declined about 15 to 16 percent since the conflict began, exceeding the estimated downside in a stress scenario.

Despite near-term caution, Ambit said valuations remain attractive, with FY28 EV/EBITDA multiples of 3.6 times to 4.9 times, suggesting current levels offer an opportunity to accumulate.

In contrast, upstream companies are seen as clear beneficiaries of higher crude prices. ONGC and Oil India could see FY27 EBITDA rise by about 30 percent and 28 percent respectively. However, both stocks continue to trade below pre-war levels, implying lower crude price assumptions.

Ambit said global oil markets have tightened amid the Middle East conflict, with crude averaging about $90 per barrel in March so far compared with below $72 before the war. Its base case assumes crude at $90 per barrel in the first half of FY27 and $70 in the second half, implying an average of about $80 per barrel for the year.

While crude prices may remain firm due to low inventory levels ahead of peak demand, Ambit does not expect prices to sustainably move above $90 per barrel unless the conflict escalates to major energy infrastructure.