Shares of India’s state-run oil marketing companies (OMCs) have declined 6-9% over the past month, hit by recent volatility in marketing margins. The margin on diesel fell to an 18-month low of negative ₹0.3 per litre in the third week of November amid US sanctions on Russian firms that have disrupted diesel exports.
Still, the sell-off in these stocks appears sentiment driven rather than rooted in fundamentals, given the gains from low crude oil prices, unchanged retail prices, and the drop in LPG under-recoveries. Brent crude is currently trading around $62 per barrel, compared with about $67 per barrel in the half year ending September (H1FY26) and $79 per barrel in FY25.
Several brokerages remain optimistic. “We feel street expectations remain materially misaligned with the run-rate visible in Q3FY26 which is likely to sustain in Q4,” noted Antique Stock Broking in a 10 December report. The brokerage has raised its FY26 Ebitda estimates by 7%, 10% and 1% for Hindustan Petroleum Corp. Ltd (HPCL), Bharat Petroleum Corp. Ltd (BPCL), and Indian Oil Corp. Ltd (IOCL)–the three OMCs–respectively.
The combined Ebitda of the three OMCs projected to grow by 66% year-on-year in FY26, following the 46% decline seen in FY25.
While marketing margins are volatile, Indian OMCs’ profits are driven by integrated margin, which comprises both refining and marketing. “We submit, while the discussion on marketing margins moves sentiment and stocks, the structure of earnings and an integrated margin trend provide comfort,” said an ICICI Securities report.
It estimates H2FY26 integrated margin to be broadly in line, or marginally higher than H1 figures of ₹8-10 per litre. Besides, lower crude prices have also helped reduce LPG under-recoveries, projected at ₹16,000 crore in FY26, far below ₹40,000 crore seen in FY25. Domestic consumers receive LPG cylinders from OMCs at regulated prices, with the government paying the difference. In the September quarter (Q2FY26), LPG under-recoveries stood at ₹4,500 crore, down from about ₹8,000 crore a year ago.
The companies have also started receiving payments against their previous year’s LPG under-recoveries from November. The government had approved reimbursement of ₹30,000 crore in August, to be distributed in 12 monthly instalments. This implies incremental cash inflow of ₹12,500 crore in the last five months of FY26.
Yet another factor helping OMCs is the discount on Russian crude oil, which rose to about $7 per barrel in November, according to a Nomura Global Markets Research report dated 2 December, from $2-3 per barrel in Q2. While the purchase of Russian oil has dropped sharply owing to US sanctions, Indian refiners are exploring other possible alternatives.
“Indian refiners may also gradually find ways to shift towards non-sanctioned Russian entities, use of shadow carriers, adopt ship to ship transfers, etc in the future to balance geopolitical and economic considerations,” said Nomura.
All said, shares of BPCL, HPCL and IOC are trading at enterprise value to FY26 estimated Ebitda ratio of 5.6x, 5.8x, and 6.5x respectively, below their 10-year average multiples.
Investors will be watching the crude price trajectory, marketing margins on petroleum products, imports from Russia, and rupee depreciation for further cues. However, the biggest risk for OMC investors remains any government decision to pass on the benefit of softer crude prices to consumers by reducing retail fuel prices.
