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Tailwinds for oil marketing companies in India as margins remain robust
Crude and gas prices have dipped and OPEC-plus is hiking supply, bringing cheers to India which is a massive energy importer. Downstream businesses like the oil marketing companies (OMCs) and gas players will gain the most from this cheap energy.
For OMCs, cheaper oil and gas equate to better margins.
OMCs such as Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL) and Indian Oil (IOCL) reported strong gross refining margins (GRMs) and marketing margins in the fourth quarter of the financial year 2025 (Q4FY25).
They are still experiencing under-recoveries on gas, but this may reduce in future and the government may compensate for under-recoveries. All three companies have steady dividend payouts.
In BPCL's Q4FY25 results, the Ebitda and Adjusted PAT, stood at ₹7,760 crore and ₹4,550 crore, down 16 per cent and 18 per cent year-on-year (YoY), respectively.
The core GRM was at $7.5 per barrel. The refining capacity utilisation was at 121 per cent.
Inventory gain per barrel was about $1.7 (versus a loss of $0.9 in the prior quarter and a gain of $0.5 a year ago). The core marketing Ebitda was ₹1.4 per litre (₹4 in the prior quarter, negative ₹2 a year back).
The LPG burden amounted to ₹10,446 crore in FY25, and ₹3,216 crore in Q4FY25. There is an impairment of investment in a subsidiary, BPRL with gross carrying value of investment of ₹13,180 crore. There was also a ₹45 crore forex loss.
Capex was ₹16,510 crore in FY25 and is targeted at ₹19,000 crore for FY26 and ₹22,000 crore in FY27. Debt at ₹23,280 crore was up by ₹4,510 crore year-on-year (Y-o-Y) and ₹3,660 crore quarter-on-quarter (QoQ).
The debt-equity (D/E) ratio is low at 0.3x.
IOCL's Q4FY25 Ebitda of ₹13,570 crore and PAT of ₹7,260 crore were up 30 per cent and 50 per cent Y-o-Y, well above consensus.
The Ebitda of ₹7,660 crore was driven by higher GRMs, and strong marketing margins. LPG losses for the quarter were ₹5,600 crore.
There is a chance of LPG compensation in FY26, while sustaining higher GRMs and strong retail margins. The GRMs per barrel of $7.9 (including inventory gain of $2.43) rose $4.9 Q-o-Q.
The blended marketing margin of ₹6,526 per tonne improved 37 per cent Y-o-Y and slipped 13 per cent Q-o-Q with a blended retail margin of ₹6.4 per litre (down ₹2.8 Q-o-Q and down ₹2.6 Y-o-Y).
IOCL is expanding its refining capacity (adding 18 million tonnes (MT) by FY28 on base of 70 MT) and is also adding petrochemical capacity.
IOCL hopes to receive compensation for LPG losses of ₹19,900 crore for FY25. LPG losses in Q1FY26 may decline given the ₹50 per cylinder hike and lower Asian LPG prices. LPG losses are expected to average ₹160-170 per cylinder in FY26, about 45 per cent lower Y-o-Y.
HPCL reported Q4FY25 earnings, with Ebitda of ₹5,730 crore and PAT of ₹3,350 crore, driven by strong GRMs and marketing margins. Core GRM was $7.1 per barrel, while blended marketing margin at ₹5.5 per kg was a beat.
The LPG loss was ₹3,300 crore in Q4, while net debt grew 6 per cent Y-o-Y (19 per cent Q-o-Q) to ₹57,900 crore. The company's CMD said the current capex cycle is coming to an end and the focus is on generating positive free cash flow with debt reduction.
HPCL's refining volume was up 4 per cent Q-o-Q at 6.7 million metric tonnes (MMT), with utilisation at 118 per cent. Blended marketing margin was ₹5.5 per kg. Exports were up 7 per cent Q-o-Q at 0.59 MMT. Share of profits from associates and joint ventures was at ₹350 crore vs ₹460 crore loss Q-o-Q.
Capex for FY25 was ₹14,510 crore. The FY26-27 capex target is ₹13,000-14,000 crore per annum. The standalone D/E ratio has reduced to 1.38x with a one-year target of 1-1.1x. The Vizag upgrade project is scheduled to commission in Q2FY26. It would add $2-3 per barrel in GRMs. Barmer Refinery is making steady progress, with commissioning expected in October 25. About 20 per cent of the crude mix would be local Barmer at some discount. The Petchem block should be commissioned by Jan-26.
The key risks for the OMCs include rising crude and gas prices, rupee weakness, government policy and any issues with ongoing expansions.
Given US tariff uncertainties, global demand may remain muted, leading to crude trading in a range of $65-70 per barrel. This could help OMCs maintain strong margins while LPG losses would also reduce.
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