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As Brent prices plummeted to USD65/bbl owing to US-led global tariff wars and OPEC+ accelerating reversal of output cuts, the GoI raised petrol and diesel excise duties by Rs2/ltr each, wef 8-Apr-25, with OMCs absorbing the same. The Petroleum Minister announced a further Rs50/cyl hike in domestic LPG prices and reiterated that LPG compensation for FY25 under-recoveries (amounting to Rs413.4bn) should also come. Autofuel price cuts could be taken if crude stays or falls below USD60/bbl, though inventory being held at USD75/bbl crude (45 days) also needs to be considered. Media reports also mentioned the Minister stating that LPG prices would be reviewed on a fortnightly basis. Current LPG under-recovery (before the Rs50/cyl hike) is Rs226/cyl, while the excise duty hike will lead to revenue accretion of Rs320bnpa for the GoI which the Minister said could be used for compensating OMCs for their LPG losses.

We believe these steps are positive for OMCs as the excise hike is reasonable and current blended autofuel gross marketing margin at USD65 Brent is still at Rs11-12/ltr; this implies a Rs7/ltr premium over normative Rs4-5/ltr levels. This translates into over-Rs1trn of autofuel over-recoveries in FY26 which would significantly exceed our projected LPG under-recoveries of less than Rs400bn by over Rs600bn. This implies a Rs3-4/ltr autofuel marketing margin cushion, which provides comfort up to USD75/bbl of Brent, beyond which normative earnings (PAT+depreciation=Capex+dividend) would be impacted. From the autofuel integrated margin point of view, the best quarter in FY25 (ie Q3) saw this margin at Rs13-15/ltr, while the current level is even higher at Rs15-17/ltr. We believe some normalization of the global scenario can lead to an upmove in oil prices, but crossing the USD75/bbl mark looks difficult amid OPEC+ continuously increasing output. Further gains on the refining front can accrue from Middle East crude exporters cutting OSPs and Russian crude economics improving. Also, we have not considered any major decline in international LPG prices, though this also has strong downside risks. We hence remain positive on OMCs and maintain our estimates, which are near the normative earnings; reiterate BUY on HPCL>BPCL>IOCL with unchanged TP of Rs450/375/160 per share, in that pecking order.

Upstream realizations are being hit by lower oil prices and their impact on gas realizations, most of which are oil linked now (APM at 10% of oil below the USD6.75/mmbtu FY26 cap; NWG at 12% of oil; and HP-HT having some linkage through alternate fuels and oil linked LNG), though valuations remain reasonably attractive. ONGC is pricing in under-USD60/bbl Brent at 8x FY26E consol target PER without assuming any further increase in downstream earnings, while for Oil India, Brent is under USD60 at 9x FY26E (this does not include the NRL expansion). The excise duty hike of Rs2/ltr would however boost NRL’s book GRMs by USD1.8/bbl, and Oil India’s consol EPS and valuation by 3-4% each. Based on our USD70-75/bbl Brent range, a USD5/bbl increase in oil prices implies 14%/11% increase in ONGC/Oil India’s FY26E consol EPS. We believe any correction in upstream stocks is a good buying opportunity.

Low oil prices would hit GAIL’s petchem division, with LPG segment realizations also facing downside risks. The larger gas marketing segment could be better off given that a large part of the US Henry Hub LNG contract is now back to back. GAIL’s residual tariff hike of at least 16-17% is expected soon, with the management earlier having guided for this to occur in current quarter.

The hike in autofuel excise duty against the RSP cut is positive for CGDs, as CNG economics remain protected. Lower APM price, at oil below USD65/bbl, is also a benefit, though we believe there is some allocation cut risk; pricing proactiveness should also exist. IGL has taken a Re1/kg hike in CNG prices in Delhi and other GAs, but further hikes may be required to reach earlier guided EBITDA margin target of Rs7/scm. We prefer MGL over IGL.

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