State-run oil marketing companies (OMCs) are expected to remain profitable in the coming quarters of the current fiscal 2025-26 owing to lower crude oil prices and supportive policies, analysts say. The three companies reported a multi-fold rise in their consolidated net profits during the first quarter.

“We see the three Indian OMCs (IOCL, BPCL and HPCL) as locked in a multi-year elevated capital expenditure cycle. This also means that policies should broadly remain supportive for the companies to remain profitable,” said JP Morgan in its report.

Elara Capital has also reiterated its positive view on OMCs due to weak crude oil price expectation which is at below $70/barrel in FY26.

The Energy Information Administration (EIA) expects global oil demand growth in 2025 and 2026 to slow to ~0.7mmbpd, the slowest pace in over a decade (except during Covid), while supply by Organization of Petroleum Exporting Countries (OPEC) is rising due to focus on market share.

“Every $1/bbl drop in crude oil price would improve OMCs’ gross margin for gasoline/diesel by around Rs 0.6/liter,” Elara Capital said.

The Tailwinds of Lower Crude Oil Prices

Analysts expect OMCs to also benefit from lower LPG losses in FY26E at current crude oil prices versus Rs 40,000 crore cumulative LPG losses in FY25.

“Strong cash flow should also help HPCL reduce leverage on the margin. Unless guidance points to risks of residual inventory losses in 2Q, numbers are likely to remain strong near-term, in our view,” JP Morgan said.

As oil prices remain low, and with the recently announced LPG subsidy compensation, the brokerage thinks that BPCL can achieve full year FY26 earnings projections within the first two quarters.

Supportive Policies and Strategic Investments

“Barring any tail risks from larger inventory losses in the coming quarters (if oil prices fall sharply), or a decline in Russian oil purchases or higher oil prices, earnings should remain strong,” analysts at JP Morgan said.

Given the drop in crude oil prices below $70/bbl, Elara Capital expects HPCL’s FY26E integrated margin to jump by 80% versus FY25 level, to Rs 4,000/tonne and that of IOCL to jump by 81% versus Rs 4,000/tonne in FY25.

As per Elara Capital’s calculations, HPCL and IOCL’s Q1FY26 retail diesel gross margin was Rs 9.8/liter versus Rs 6.0/liter QoQ and Rs 4.4/liter YoY, and gasoline gross margin was Rs 11.8/liter versus Rs 9.5/liter QoQ and Rs 5.1/liter YoY.