Even after the government hiked petrol, diesel prices by Rs 3 per litre last week, Indian fuel retailers continue to bleed due to under-recoveries and need another Rs 25 per litre price hike only to break even on marketing margins, according to analysts who estimate a daily loss run rate of Rs 1,380 crore for oil marketing companies (OMCs).
Calculations done by Nomura analyst Bineet Banka show that OMCs are currently losing Rs 25/litre on petrol and diesel on a blended basis and that their daily loss run rate is now at a staggering Rs 1,380 crore if one were to include LPG as well. The brokerage firm estimates that at the current run rate of integrated losses, Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), and Hindustan Petroleum (HPCL) would completely exhaust their balance sheet equity within 10, 4, and 2 years, respectively, if losses continue unchecked.
HPCL is the most exposed. "Integrated margins for HPCL are most impacted due to higher marketing exposure," Nomura wrote, estimating the company is currently making losses of $19 per barrel on an integrated basis. IOCL is losing $4 per barrel, and BPCL $8 per barrel, compared with $12–14 per barrel in margins all three were generating just before the current oil shock began.
Elara Capital's Gagan Dixit flagged the same vulnerability: "HPCL is the most vulnerable OMC because of its higher retail marketing exposure relative to refining capacity. Q1FY27 would be challenging due to expensive crude, low product prices and high volatility."
Elara estimates the Rs 3 per litre hike will reduce annualised gasoline and diesel integrated losses by approximately Rs 34,500 crore on an annualised basis. "Unless crude corrects, further retail price hikes or additional fiscal support would be required," Dixit said.
The hike may also be just the opening move. Nomura draws a direct parallel with 2022: when Russia invaded Ukraine, fuel prices were held flat for nearly a month as Brent surged from around $94 to $110 per barrel, after which prices were raised roughly Rs 0.80 per litre daily for about 15 days, a cumulative hike of Rs 10 per litre. At that point, OMC marketing margins had turned deeply negative, at approximately Rs 18 and Rs 14 per litre on diesel and petrol, respectively. "The current Rs 3 per litre hike could be the first in a series of fuel price increases, similar to what was seen during the Russia-Ukraine war in 2022," Nomura said. "If crude prices stay high, this could be the start of further gradual hikes to support OMC margins."
LPG compounds the pain
Auto-fuel losses are not the only pressure point. LPG under-recoveries have hit record highs, with HPCL management citing losses of Rs 670 per cylinder on a recent analyst call. Emkay puts the figure at Rs 420 per cylinder based on current Saudi contract prices of $750 per metric tonne, but acknowledges that spot cargo premiums explain the higher management estimate. On a daily basis, Emkay estimates LPG losses alone are running at Rs 200–400 crore.
Aviation turbine fuel is also under stress, with the domestic scheduled airline rate unchanged since April 2026, creating additional under-recoveries in that segment.
To cushion OMC losses, the government reinstated the Special Additional Excise Duty mechanism on standalone refiners on March 26, effectively capping refining margins for players with limited retail exposure. The SAED on diesel was revised to Rs 16.5 per litre on May 15, its third revision, partially offsetting the approximately Rs 27.6 per litre under-recovery on diesel for OMCs, but only on volumes processed above their own refinery output.
An excise duty cut of Rs 10 per litre on petrol and diesel was also announced in March. Nuvama, however, cautions that this relief may prove temporary: "The Rs 10 per litre excise duty cuts taken in March may eventually need to be reversed once oil prices start moderating, implying marketing margins may not return to pre-war levels any time soon."
IOCL best placed
Among the three OMCs, analysts broadly agree that IOCL is the least vulnerable. "Given the strong diesel and ATF cracks, and least exposure to fuel marketing as a proportion of refining throughput, we believe IOCL will likely be best placed in the current situation," Nuvama said, adding that upcoming refining capacity additions could further strengthen IOCL's position relative to peers.
On the city gas side, the rise in liquid fuel prices has created headroom for compressed natural gas price increases. IGL and MGL have both raised retail prices by Rs 2 per kg, which Emkay estimates will improve EBITDA per standard cubic metre by approximately Rs 1 for each company, taking IGL's metric to around Rs 5.5 and MGL's to Rs 7–8.
Valuations defy the crisis
Despite the severity of losses, OMC stocks are trading at a premium to valuations seen at the onset of the Russia-Ukraine war. Nuvama flags this as anomalous: HPCL, the most exposed of the three, trades at a valuation premium of approximately 77% to its early-war levels even as it faces the steepest integrated losses.
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Emkay maintains a cautious stance across OMCs and city gas distributors. "We believe the continuation of the crisis could lead to more retail price hikes in auto-fuels, but in a staggered manner," the brokerage said, retaining Add ratings on IOCL, BPCL, HPCL, IGL, and MGL while flagging the volatile and elevated pricing environment as a key risk.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
