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As a partial relief to OMCs, the government has increased petrol and diesel prices by Rs3/ltr (Delhi) each, wef 15-May. The hike remains inadequate relative to prevailing losses, but reduces daily under-recoveries of OMCs by Rs1bn, ie from Rs6bn to Rs5bn on auto-fuels, assuming prevailing spot Brent of ~USD110/bbl, Rs96/USD, and normalized refining cracks of USD15/bbl (SAEDadjusted). On a per ltr basis, integrated under-recoveries post price hikes stand at ~Rs13, which implies a Delhi equivalent RSP hike of ~Rs15. On the other side, oil prices falling to USD89/bbl would also bring back normalized earnings. Additionally, a sharp increase in international LPG prices has further aggravated losses. At current Saudi CP of USD750/mt, we estimate LPG under-recovery at Rs420/cy. However, HPCL management has stated Rs670/cy in its recent call, which could be due to premiums on delivered spot cargoes. At Rs420-670/cy, daily losses on LPG stand at ~Rs2-4bn. We believe the continuation of the crisis could lead to more RSP hikes in auto-fuels, but in a staggered manner. There are some under-recoveries on ATF also, as the rate change for domestic scheduled airlines was lower than expected, with no change since Apr-26. The increase in liquid fuel prices has created headroom for CNG price hikes, with IGL and MGL raising RSPs by Rs2/kg each. The increase is expected to improve EBITDA/scm by ~Rs1 for both, with IGL’s EBITDA/scm expected at ~Rs5.5 and MGL’s at ~Rs7-8. We maintain a cautious stance on OMCs and CGDs amid the volatile and elevated pricing environment, and retain ADD on IOCL, BPCL, HPCL, IGL, and MGL. We will assess IGL’s EPS and TP post Q4 results.

Rs3/ltr hike in petrol/diesel RSP cuts losses by Rs1bn/day; CNG up by Rs2/kg

OMCs took a Rs3/ltr hike each in petrol and diesel prices wef 15-May (Delhi rate with VAT adjusted accordingly in other states). The much-required hike was probably short of expectation as against a Rs10/ltr excise duty cut earlier by the government. We had expected a hike of >Rs5/ltr, though we believe the dynamic macro situation could mean a step-by-step approach with staggered price hikes, and expect more to come if oil prices remain elevated. Under-recoveries, which are now based on integrated margins, have come down to Rs12.7/ltr from Rs15.0/ltr earlier, with daily losses on auto fuels down from Rs6bn to Rs5bn. Additionally, key CNG-heavy CGD players—IGL and MGL—who were reeling under margin pressure from the rise in NWG and oil-linked and spot LNG prices besides currency depreciation, also took a Rs2/kg hike each in CNG RSPs, with CNG economics vs liquid fuels, in fact, slightly better than before

Elevated LPG under-recoveries another pain point, but should be budgeted

With Saudi CP increased to USD750/mt for Apr/May-26, coupled with increased reliance on spot LPG at elevated premiums amid supply disruptions, LPG under-recoveries for OMCs have risen sharply to ~Rs420/cy from ~Rs84/cy in Q4FY26, implying sector-level losses of ~Rs2.4bn/day. Per HPCL’s management, LPG under-recoveries have increased to ~Rs170/cy in Apr-26 and further to ~Rs670/cy in May-26, implying cumulative sector under-recoveries of ~Rs150bn over the two-month period. If sustained, this translates to annualized LPG under-recoveries of ~Rs1.3trn. While LPG is a regulated commodity and under-recoveries are likely to be subsidized by the government, the elevated losses would result in at least near-term balance-sheet stress for OMCs. Despite the ongoing disruptions, OMCs have maintained uninterrupted supplies of auto-fuels as well as LPG, with 1.5-2.0 months cover still.

Refining export duties to ensure normalized GRMs and protect marketing

The Ministry of Finance has implemented export duty on transport fuel to normalize refined product cracks. This has been a boon, especially for HPCL whose standalone refining to marketing ratio is 50-55%. As per the four changes since 26-Mar, we estimate a targeted diesel crack of ~USD20/bbl, while actual Q1TDFY27 seems to be USD15- 20/bbl. In petrol also, in the current cycle, Rs3/ltr of duty was introduced, as average cracks crossed USD20/bbl in the past 15 days. We believe standalone refiners should be recording ~USD20/bbl of transport fuel cracks, which at USD100/bbl crude and corresponding ‘Fuel and Loss’ could yield ~USD7-8/bbl of GRMs overall.

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