It’s mayhem across the markets as Crude rates shot up well over $115/bbl market. The oil marketing companies have seen a sharp cut as a result along with the sell-off across the market. What’s added to the bad news is that UBS has downgraded the three key OMCs in a single sweep.
Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation are staring down an earnings squeeze that UBS analysts say the market has barely begun to price in. With Brent crude climbing and retail fuel prices frozen since May 2022, UBS slashed target prices and earnings estimates for these. .
The core problem rising crude is actually bad news for US Dollar these companies
Most people assume oil companies make more money when crude prices rise. For India’s state-owned oil marketing companies, the opposite is often true, and that is exactly the trap UBS says the market is walking into right now.
These companies sell more diesel and petrol than their own refinery produce, which means they buy the difference at market prices. When crude goes up and retail prices stay frozen which is the political reality in India their marketing margins get crushed. UBS estimates that a 5 per barrel increase in crude prices, if not passed on to consumers, would wipe out integrated margins of roughly Rs 4 to Rs 5 per litre, compared to Rs 13-14 per litre in the financial year 2025.
“Integrated (refining + marketing) margins for Indian State-Owned Enterprise oil marketing companies are negatively levered to increases in crude prices, given limited scope of retail fuel price/taxation changes, further impacted by Foreign Exchange depreciation.” UBS Global Research, 9 March 2026
The US Dollar to Indian Rupee rate has moved from 79 in calendar year 2022 to 92 now, making imported crude even more expensive in rupee terms.
UBS slashed earnings estimates sharply across the board
The brokerage has cut its financial year 2027 profit after tax estimates by 19% for Indian Oil Corporation, 15% for Bharat Petroleum Corporation, and a steep 46% for Hindustan Petroleum Corporation. These cuts are 6%, 6%, and 48% below what the broader analyst consensus currently expects, which means the market is sitting on estimates that UBS believes are far too optimistic.
Marketing margin assumptions for financial years 2027 and 2028 have been cut by 43-45% and 22-26% respectively. On the other side, gross refining margin estimates have been raised by 30-48% for financial year 2027 and 21-39% for financial year 2028 but that upside in refining does not compensate for the marketing losses because all three companies sell significantly more than they refine.
“All three State-Owned Enterprise oil marketing companies are negatively leveraged to this, as they market more diesel/gasoline than they produce in their refineries.” UBS said.
Hindustan Petroleum Corporation is the most exposed, with a marketing-to-refining ratio of 2.2, compared to 1.2 for both Indian Oil Corporation and Bharat Petroleum Corporation.
Here is a quick look at UBS view on individual counters –
1. Indian Oil Corporation downgraded to ‘Neutral’
Indian Oil Corporation gets the softer of the two downgrades, moving from Buy to Neutral. UBS has trimmed its target price by Rs 15, rolling its valuation forward to financial year 2028 earnings and lowering the target price-to-earnings multiple from 8.0 times to 7.0 times. This compares to the stock’s 10-year historical average multiple of 7.6 times, meaning UBS is deliberately valuing it below its own long-term norm to account for earnings uncertainty.
Financial year 2027 earnings per share estimate has been cut from Rs 23.8 to Rs 19.2, while financial year 2028 earnings per share stands at Rs 25.0. The stock currently trades at 8.8 times financial year 2027 estimated earnings and 6.7 times financial year 2028 estimated earnings. Price-to-book sits at 1.0 times for financial year 2027, one of the cheaper valuations in the sector.
“We roll forward our valuation to financial year 2028 and lower our target price-to-earnings to reflect the earnings uncertainty, which we believe is not priced in stock prices down only 5-13% in the past month.” UBS said.
2. Bharat Petroleum Corporation downgraded to ‘Neutral’
Bharat Petroleum Corporation Limited also moves from Buy to Neutral, with UBS cutting its target price by Rs 60. The target price-to-earnings multiple has been reduced from 8.5 times to 7.5 times, against a 10-year historical average of 9.4 times again a meaningful discount being applied to reflect the uncertain earnings outlook.
Financial year 2027 earnings per share estimates have been cut from Rs 50.0 to Rs 42.6, while financial year 2028 earnings per share is estimated at Rs 48.6. The stock trades at 8.3 times financial year 2027 estimated earnings and 7.3 times financial year 2028 estimated earnings. Price-to-book is at 1.3 times for financial year 2027.
With a market capitalisation of Rs 1,38,000 crore (US Dollar 16.6 billion), Bharat Petroleum Corporation is the mid-sized player in this group, and UBS sees limited near-term upside until there is more clarity on whether retail fuel prices will be revised or excise duty will be cut to absorb the crude price shock.
3. Hindustan Petroleum Corporation downgraded to ‘Sell’
This is where UBS turns most aggressive. Hindustan Petroleum Corporation is the only one of the three to receive a Sell rating, and the target price cut of Rs 200 from Rs 540 to Rs 340 is the sharpest in absolute terms across the three stocks. UBS has cut its financial year 2027 earnings per share estimate from Rs 63.5 to Rs 34.3, a reduction of nearly 46%.
The target price-to-earnings multiple has been reduced from 8.5 times to 7.5 times, against the stock’s 10-year average of 7.0 times. Hindustan Petroleum Corporation marketing-to-refining ratio of 2.2 is the highest among the three, making it the most vulnerable to the scenario UBS is modelling where crude stays elevated and retail prices stay frozen.
“The impact of a US Dollar 5 per barrel increase in crude prices on diesel/gasoline marketing margins poses Rs 88,000 million downside to Hindustan Petroleum Corporation consolidated profit after tax, or 62% downside to financial year 2027 consensus earnings.” UBS stated.
The stock currently trades at 11.8 times financial year 2027 estimated earnings, which UBS considers expensive given the earnings risk, even though the price-to-book at 1.3 times is not stretched in isolation.
The oil price backdrop and why isk is skewed to upside
UBS’ Global Oil team has revised its near-term crude oil price forecast upward, pegging the first quarter of 2026 at $71 per barrel, with the March average closer to $80 per barrel. The 2026 average is now estimated at $72 per barrel.
The base case assumes current supply disruptions ease over the next few weeks without lasting infrastructure damage. But UBS is explicit that upside risks to crude are significant. Prolonged disruptions or strikes on energy infrastructure could push Brent above $90 per barrel, and potentially past $100 per barrel if supply flows stay blocked.
“Upside risks are significant, as prolonged disruption or strikes on energy infrastructure could push Brent above $90 per barrel and potentially above $100 per barrel if flows remain blocked.” UBS Global Research stated.
Meanwhile, retail prices in India have been unchanged since May 2022 despite multiple swings in global crude. UBS expects any price hike or excise duty cut to be small and rolled out gradually. The recent Rs 60 per cylinder increase in liquefied petroleum gas prices roughly 7% offers some marginal relief, but does not move the needle on petrol and diesel marketing economics.
Conclusion
UBS’ note pointed out that the earnings pain at India’s state-run oil retailers may be deeper and longer than what stock prices currently suggest. With marketing margins structurally more important than refining margins for all three companies and with no meaningful room to raise retail prices in a politically sensitive environment, the next few quarters could be genuinely difficult. Among the three, Hindustan Petroleum Corporation carries the most risk by UBS’ math, while Indian Oil Corporation and Bharat Petroleum Corporation are rated Neutral.