NEW DELHI: State-owned oil marketing companies (OMCs) are expected to report a strong beginning to the financial year 2025-26 driven by robust marketing margins in the first quarter of FY26, as per analysts.
According to Emkay Global Financial Services, petrol marketing margins of OMCs grew 28% QoQ to Rs 12.8 per litre in Q1FY26, while diesel margins jumped to Rs 9.2/litre from Rs 5.1/litre QoQ, on account of lower crude oil prices amid frozen retail prices.
“Brent averaged at around $68/bbl in Q1FY26, 10% lower QoQ, and recorded a weak close at $68/bbl, down by $9/bbl between the two quarter ends. This decline is expected to result in refining inventory losses of $1.5-2/bbl each for BPCL and HPCL, while IOCL could face a higher inventory loss of $2.5/bbl due to a relatively longer inventory cycle,” Emkay Global Financial Services said in its quarterly preview.
While Prabhudas Liladher Capital expects sales of OMCs to decline by 5% year-on-year led by lower oil prices, it believes that expansion in marketing margins is likely to result in the companies reporting a staggering 122% rise in EBITDA in Q1FY26.
Benchmark gross refining margins of OMCs rose to $5.6/bbl from $3.2/bbl QoQ, largely owing to 38% QoQ uptick in gasoline spreads, while gasoil grew 8% QoQ, as per analysts. Moreover, Russian crude imports rebounded, amid range-bound discounts, while the Middle East OSP (official selling price) premiums were flat at $1.9/bbl.
“We expect BPCL and HPCL to see 40-45% uptick each in EBITDA QoQ, while IOCL is likely to witness a 17% improvement due to the base effect. Q1FY26 PAT (profit after tax) for IOCL,BPCL, and HPCL is estimated at Rs 6,850 crore, Rs 6,590 crore, and Rs 4,650 crore, respectively,” said Emkay Global.
A slew of concerns over trade tariffs and global GDP (gross domestic product) combined with increased supply of 1.2 million barrels per day resulted in Brent diving to below $60/bbl for a while and then picking up subsequently to average $68/bbl during the quarter, a decline from $75.7/bbl in Q4FY25.
Analysts at Prabhudas Liladher believe that a decline in oil prices would result in falling realizations of ~8% QoQ for oil producers such as ONGC and Oil India while it would aid gross marketing margins on petrol and diesel sequentially from Rs 10.4 per litre and Rs 6.4/litre to Rs 12/litre and Rs 10/litre respectively for OMCs.
“Decline in benchmark LPG prices would also reduce LPG under-recoveries for the OMCs. We estimate that LPG under-recovery for the OMCs would stand at Rs 4,500 crore in Q1FY26 against Rs 12,100 in Q4FY25,” PL Capital said. However, decline in oil prices would result in inventory loss of $2-3/bbl in the refining companies during the quarter.
Emkay Global estimates ONGC’s total crude output to decline 0.7% on-year and that of gas to fall by 1%. Oil India’s crude output is expected to grow 1% on-year while gas production is expected to register a 3% growth.
“The scrapping of windfall levy implies market-linked oil realizations for Q1FY26. Despite lower output, we estimate EBITDA will increase 17% QoQ for ONGC on lower expenditure profile; OIL is likely to see an 8% uptick due to lower opex and statutory levies. We estimate ONGC/OIL’s RPAT at Rs 8,060 crore and Rs 1,230 crore during Q1FY26 respectively,” Emkay Global said.
For city gas distribution companies, analysts expect improvement in margins due to lower gas costs.
“Mahanagar Gas Ltd’s double-digit run rate is expected to sustain, with 11% YoY volume growth in Q1FY26, while unit EBITDA should recover to Rs 9.8/scm from Rs 8.3/scm QoQ, driven by better realizations and lower gas costs,” Emkay Global said.
The firm expects Indraprastha Gas Ltd EBITDA to grow by 43% QoQ to Rs 550 crore, as unit EBITDA is expected to be up 40% at Rs 6.5/scm (standard cubic meter), while volumes are likely to grow by 7% YoY and 1% QoQ.
Source: The Financial Express
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