Earnings of state-run oil marketing companies (OMCs) are set to rise sharply in the March quarter, supported by fresh LPG compensation payouts and robust fuel marketing margins, even as losses on subsidised cooking gas are expected to climb again, analysts said.
According to Motilal Oswal, the fourth quarter of FY26 is shaping up to be a strong finish for OMCs, with compensation inflows likely to provide a meaningful boost to profitability after a healthy December quarter.
The three state-run refiners — Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) — have already booked two equal monthly instalments of LPG under-recovery compensation during Q3FY26.
In the December quarter, HPCL recognised ₹1,320 crore as LPG compensation, BPCL received ₹1,270 crore, while IOCL booked ₹2,410 crore, cushioning earnings against losses on domestic cooking gas sales.
Financial Cushion
The larger uplift, however, is expected in Q4FY26. Motilal Oswal estimates HPCL will realise another ₹1,980 crore in the March quarter, BPCL ₹1,900 crore and IOCL a sizeable ₹3,620 crore — inflows that are expected to materially lift quarterly profits.
Analysts said these payouts will come on top of strong marketing margins, which have benefited from softer crude prices and unchanged retail fuel rates.
During the December quarter, average crude prices fell 6% sequentially and 10% year-on-year, while petrol and diesel pump prices remained stable. This widened marketing spreads for OMCs and strengthened operating profitability.
Reflecting the improved outlook, Motilal Oswal has raised its marketing margin assumptions for the coming quarters. For HPCL, the brokerage increased its motor spirit (MS) and high-speed diesel (HSD) margin estimate for Q4FY26–FY28 to ₹4 per litre from ₹3.5 earlier. For BPCL and IOCL, the firm lifted its MS/HSD margin assumptions to ₹4.5 per litre from ₹3.5.
Margin Dynamics
Despite the supportive fuel margin environment, analysts cautioned that LPG under-recoveries are set to rise again in the March quarter after easing in Q3FY26.
“While HPCL’s LPG under-recovery moderated to ₹35–40 per cylinder in the third quarter against over ₹100 per cylinder in Q2FY26, this relief appears short-lived, with under-recoveries expected to revert higher to an average of ₹95–130 per cylinder in Q4FY26 amid rising Saudi propane prices,” Motilal Oswal said.
Even so, the brokerage expects the impact of higher LPG losses to be largely offset by compensation inflows and strong fuel marketing margins.
The broader crude outlook also remains supportive for downstream companies. The International Energy Agency has projected global oil supply growth to outpace demand growth by 1.5 million barrels per day in 2026, pointing to a potential market surplus.
Motilal Oswal has retained its bearish stance on crude, maintaining a Brent forecast of $60 per barrel for FY27 and FY28 — a scenario that typically supports refining and marketing profitability for OMCs.
“While valuation appears reasonable and the marketing performance remains strong for BPCL, a muted medium-term refining outlook and the commencement of a new capex cycle emerge as key concerns,” the brokerage added.
Overall, analysts expect the March quarter to deliver a strong earnings finish for state-run OMCs, driven by compensation inflows and favourable margin dynamics, even as LPG losses re-emerge