Oil marketing companies (OMCs) are poised for a sharp rebound, with operating profits expected to surge more than 50% to $18-20 per barrel this fiscal year. Crisil Ratings said the growth is driven by stronger marketing margins amid stable retail fuel prices and supportive crude oil dynamics.
OMCs generate revenue through two core businesses — refining and marketing. They earn gross refining margin (GRM) from converting crude into fuel and marketing margin from selling petrol, diesel and other petroleum products.
Stable fuel prices to boost operating returns
“This fiscal, the improvement in marketing margin will more than offset a moderation in refining margin owing to slow growth in global demand for fossil fuels as the world transitions towards cleaner energy sources,” Crisil Ratings said in a release.
Crude prices are expected to soften to $65–67 per barrel. The GRM is likely to remain modest at $4–6 per barrel. In contrast, unchanged domestic fuel prices are set to push marketing margins to around $14 per barrel, or roughly Rs 8 per litre, lifting overall operating margins.
Long-term profitability normalises around $11 per barrel
Over the past five fiscal years, geopolitical uncertainties have impacted oil prices, while retail fuel prices have been range-bound.
As a result, OMCs’ operating profit dipped to as low as $0.13 per barrel in FY23, when oil prices averaged $93 per barrel, and peaked at about $20 per barrel in FY24, when oil prices softened to$83 per barrel.
While annual margins have fluctuated, they have ultimately normalised to about $11 per barrel.
In fiscal 2025, OMCs posted operating profit of around $12 per barrel, in line with long-term trends. With crude averaging $79 per barrel, both GRM and marketing margins stood at roughly $6 per barrel.
Higher earnings to fuel Rs 90,000 crore capex
The stronger profitability this fiscal is expected to lift cumulative cash accruals to Rs 75,000–80,000 crore, up from Rs 55,000 crore last year. This will support nearly Rs 90,000 crore in capital expenditure planned by OMCs, mainly towards brownfield capacity expansion.
OMCs’ leverage is also set to improve, with debt-to-Ebitda likely easing to 2.2x from 3.6x last year.
“Capex momentum continues, but healthier earnings will limit reliance on external debt,” said Joanne Gonsalves, Associate Director, adding that credit profiles remain supported by the sector’s strategic role and government ownership.
Crisil warns of risks from geopolitical disruptions
Crisil cautioned that any major supply cuts or geopolitical escalation could disrupt crude prices and alter the outlook.
