OMCs likely to end FY26 on a strong note, LPG compensation to boost Q4 earnings

OMCs likely to end FY26 on strong margins, LPG compensation to boost earnings

• OMCs to end FY26 with strong marketing margins and boosted earnings from LPG aid
• HPCL, BPCL, IOCL to recognize more LPG compensation in Q4FY26
• Analysts expect higher LPG under-recoveries in Q4FY26 amid rising propane prices

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State-run oil marketing companies (OMCs) are on track to end the current fiscal on a healthy note following robust marketing margins in the third quarter. Earnings  will get a further boost from upcoming tranche of LPG compensation in the fourth quarter, analysts have said.

The three OMCs have, so far, booked two equal monthly instalments as compensation for LPG under recoveries in the third quarter.

While HPCL has received  Rs 1,320 crore, BPCL got Rs 1,270 crore. IOCL recognized two equal monthly installments adding to Rs 2,410 crore.

Another Rs 1,980 crore of LPG compensation will be realised in Q4 by HPCL, Rs 1,900 crore by BPCL and  Rs 3,620 by IOCL, significantly boosting earnings, Motilal Oswal said in its report.

Analysts expect OMCs’ under recoveries to be higher in the fourth quarter.

“While HPCL’s LPG under-recovery moderated to Rs 35-40 per cylinder in the third quarter against over Rs 100 per cylinder in Q2FY26, this relief appears short-lived, with under-recoveries expected to revert higher to an average of Rs 95-130 per cylinder in Q4FY26 amid rising Saudi propane prices,” Motilal said.

The brokerage has raised its estimate for motor spirit (MS) and high speed diesel (HSD) marketing margin for Q4FY26-FY28 to Rs 4 per litre from Rs 3.5 for HPCL.

For BPCL and IOCL, the firm raised its MS/HSD marketing margin assumptions to Rs 4.5 from Rs 3.5.

“While valuation appears reasonable and the marketing performance remains strong for BPCL, a muted medium-term refining outlook and the commencement of a new capex cycle emerge as key concerns,” Motilal said.

In the December quarter, average oil prices declined by 6 percent on a sequential basis and 10 percent from the previous year, while retail prices were unchanged. Prospects of lower crude prices are further expected to support earnings growth for OMCs.

The International Energy Agency now estimates global oil supply growth to exceed demand growth by 1.5 million barrels a day in 2026.

“Hence, we remain bearish on crude prices and maintain our Brent price forecast of $60/bbl for FY27/28,” Motilal Oswal said.