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Refining Leads, Lubricants Resilient; SEAMEC Seasonally Soft

On the strength of global middle-distillate supply tightness, we expect EBITDA margins for CPCL and MRPL to expand by 690 bps and 869 bps QoQ, respectively. Consequently, PAT is projected to increase by 7.2% QoQ for CPCL and 6.3% QoQ for MRPL. Meanwhile, higher base oil prices are expected to constrain near-term margin expansion for lubricant players. However, for Gulf Oil Lubricants, we expect mid-teens volume growth to support earnings, with EBITDA margin remaining broadly stable QoQ. A lagged correction in base oil price, following lower crude, is estimated to provide scope for margin expansion in subsequent quarters. SEAMEC is expected to see a seasonally softer quarter due to monsoons, though charter rates remain robust at ~USD 100,000/day with limited cost escalation.

Diesel-led GRM Expansion Drives Earnings

The earnings strength is primarily driven by a sharp tightening in the global middle-distillate market, which pushed diesel crack to record level in this quarter. ICE gasoil cracks reached high of USD 99/b, while Dubai gasoil cracks remained above USD 50/b, reflecting constrained product availability across key markets. Global middle-distillate supply tightened materially during the quarter, driven by disruptions across multiple key supply regions. Ukrainian strikes on Russian refineries reduced product availability, while Russia’s extended diesel export restrictions further constrained global supply. At the same time, disruption through the Strait of Hormuz restricted Middle Eastern product flows, particularly to Europe. These supply constraints, coupled with multi-year-low distillate inventories across the US, Asia and Europe and the seasonal refinery maintenance cycle, further tightened the global diesel balance. We expect diesel cracks to remain elevated compared to past five average throughout FY27.

Diesel outpacing crude is expected to drive strong GRM expansion for diesel-heavy refiners CPCL and MRPL. India’s reduction in the diesel export tax to INR 16/litre (~USD 26/b) provides an additional earnings tailwind. We have raised the target price for CPCL to INR 1,885/sh from INR 1,540/sh on the back of higher-than-expected diesel cracks during Q2FY27 and Q3FY27 as we expect company to deliver strong growth during both the quarters. Meanwhile, we may or may not update our target price for MRPL based on detailed analysis of the results.

Lubricants - Growth Holds Firm, Margin Resilient

With over 60% of domestic base oil requirement met through imports, the limited correction in Group II price, coupled with the sharp increase in Group III prices, is forecasted to constrain near-term margin expansion for lubricant manufacturers. For Gulf Oil Lubricants, however, we expect robust volume growth in the lower-teens in this quarter, which is anticipated to support earnings despite elevated input cost. We expect EBITDA margins to remain broadly stable QoQ, with limited downside risk. Given the typical lag between crude and base oil prices, the recent correction in crude should gradually translate into lower base oil costs, supporting margin improvement over the subsequent quarters.

SEAMEC – seasonally soft quarter

On a sequential basis, SEAMEC is expected to have weaker quarter due to monsoons. However, the charter rates continue to be at USD100,000/day, without meaningful increase in costs.

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