JP Morgan’s latest report projects that profitability at state-run oil marketing companies (OMCs) will improve as declining crude oil prices boost fuel marketing margins, but rising debt levels and uncertainty over future fuel taxes could weigh on the sector’s longer-term earnings outlook, according to the brokerage. The report comes amid a global crude price slide that has pushed composite margins on petrol and diesel sales above levels seen before the recent West Asia conflict.
Margin Recovery and Earnings Outlook
The improvement in composite margins has been driven by lower crude prices and reduced central excise duties, JP Morgan noted. The conflict in the Middle East had pushed global oil prices higher, while retail fuel prices in India remained largely unchanged for much of the period, increasing only partially despite rising costs. JP Morgan stated, “Our estimates for OMC composite margins on petrol and diesel are now higher than pre-war levels. Losses on LPG are still elevated, but should also start to track oil down soon.” However, the brokerage cautioned that first-quarter earnings (April–June) are likely to be impacted by significant inventory losses from the recent fall in crude prices. Profitability is expected to improve from the second quarter onwards.
Key Risks: Debt and Tax Policy
JP Morgan warned that two factors could limit enthusiasm over the improving outlook. First, OMCs have acquired material debt during recent months, affecting valuations. Second, a major part of the profitability restoration stems from the reduction in excise duties. In March, the government reduced excise duty on petrol and diesel by ₹10 per litre each to cushion consumers. The report noted that duties could be restored once global oil prices stabilise at lower levels. The government’s decision to keep excise duties lower has resulted in roughly ₹1.8 lakh crore in annual forgone revenue, according to analysts. JP Morgan said the government may allow OMCs to retain higher margins temporarily to reduce debt, but pressure to increase fuel taxes could return as government spending commitments rise over the next two fiscal years.
Company-Level Impact and Preferred Picks
Among the three state-owned OMCs—Bharat Petroleum Corporation Limited (BPCL), Indian Oil Corporation (IOC), and Hindustan Petroleum Corporation Limited (HPCL)—JP Morgan expects BPCL and IOC to benefit the most if crude prices continue to soften. The report estimates that BPCL and IOC currently enjoy composite petrol and diesel margins higher than pre-conflict levels, while HPCL’s margins have largely recovered to or surpassed pre-spike levels. LPG losses remain substantial but should ease as lower oil prices filter through. JP Morgan identified BPCL and IOC as its preferred picks in the current environment.
| OMC | Margin Status (vs. Pre-Conflict) | Key Outlook |
|---|---|---|
| BPCL | Higher than pre-war | Strongest beneficiary if crude softens |
| IOC | Higher than pre-war | Strong beneficiary with BPCL |
| HPCL | Recovered to or surpassed pre-spike levels | Lagged but recovering |
Fuel Price and Crude Price Outlook
The report comes days after Union Petroleum Minister Hardeep Singh Puri indicated that petrol and diesel prices could be reduced once lower-priced crude purchased recently reaches Indian refiners. JP Morgan expects OMCs to post stronger earnings in the December and March quarters if crude prices remain below $80 per barrel and refining margins stay elevated. However, it warned that visibility on fuel marketing margins beyond FY2028 remains limited, making the sector heavily dependent on crude oil movements and government tax policy.
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