OMCs Stumble Amid Weak Margins and Absence of Budget Support

Oil Marketing Companies are facing challenges due to a lack of budgetary support for LPG under-recovery, declining margins, and weak refining benchmarks. The government's unchanged excise duty and lower crude prices may offer some relief, but the FY26 budget does not directly address LPG under-recovery.

Oil Marketing Companies (OMCs) are confronted with significant short-term hurdles, as outlined in a report by Dolat Capital. Key challenges include the lack of budgetary support for LPG under-recovery, weak Singapore Benchmark Gross Refining Margins (GRM), and shrinking integrated margins on auto fuel.

Although the absence of fiscal relief for LPG is concerning, the government's decision not to increase excise duties in the fiscal year 2026, coupled with declining crude oil prices, might provide a partial financial buffer for the OMCs. Analysts suggest that a Rs 2.5 per litre increase in Gross Marketing Margins (GMM) on auto fuels could adequately cover the estimated LPG under-recovery for fiscal year 2025.

The static excise duty and declining oil prices imply that OMCs might enjoy higher-than-average GMM on auto fuels. Despite these potential buffers, OMCs still face obstacles, particularly with the Singapore Benchmark GRM weakening and a decline in integrated fuel margins.

(With inputs from agencies.)