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Broad-based Q1FY27 outperformance reinforces sector momentum:

CPCL delivered 84.8% YoY growth in revenue to INR 274 Bn (vs CIE estimate of INR 243 Bn), while EBITDA surged 1,476.4% YoY to INR 15,549 Mn (vs CIE estimate of INR 15,670 Mn). MRPL reported 120.4% YoY topline growth to INR 382 Bn (vs CIE estimate of INR 307 Bn), with EBITDA up 633.7% YoY at INR 13,176 Mn (vs CIE estimate of INR 13,708 Mn). Meanwhile, Gulf Oil surprised positively, with revenue rising 32.5% YoY and 26.9% QoQ to INR 13,204 Mn (vs CIE estimate of INR 11,013 Mn), while EBITDA increased 34.6% YoY and 26.1% QoQ to INR 1,704 Mn (vs CIE estimate of INR 1,399 Mn)

Geopolitical Friction and Depleted Inventory Hubs Support Global Distillate Cracks:

Global middle distillate fundamentals are tightening sharply as structural supply shortfalls coincide with geopolitical disruption and depleted inventory. Europe continues to face a persistent deficit, exacerbated by reduced refinery throughput in the Middle East and elevated shipping risk around the Strait of Hormuz. At the same time, Russia's ability to bridge this gap remains limited, with refinery operations continuing to be affected by drone attacks. While the US refiners are operating at near-record distillate production levels, robust export demand from Europe and South America is drawing significant volumes out of the domestic market, leading to a steady erosion of the US inventory. With storage levels across major trading hubs in Europe and Singapore already hovering near minimum operational thresholds, the global distillate market has little buffer left to withstand any additional supply disruption.

Supportive Diesel Cycle Strengthens CPCL and MRPL Investment Case:

We expect diesel cracks to remain structurally strong through FY27 as the global middle distillate market continues to face persistent supply-side constraint. The rationalisation of China's independent refining sector has reduced the market's ability to respond quickly to supply disruption, while ageing refining infrastructure across several regions continues to increase the risk of unplanned outages. With seasonal refinery maintenance scheduled ahead of the winter demand period, the opportunity to meaningfully replenish inventory appears limited. At the same time, demand from freight transportation, agriculture and industrial activity remains relatively price-inelastic, allowing refiners with available distillate production capacity to capture sustained margin premiums. In this backdrop, CPCL and MRPL are well-positioned to benefit from a supportive diesel pricing environment and stronger refining economics

Group III Base Oil Puts Pricing Power to the Test:

Lubricant players navigated severe raw material volatility and geopolitical disruptions caused by the West Asia/Strait of Hormuz crisis. This macro environment caused Group III base oils to become highly scarce and expensive. As companies typically carry 30 to 45 days of raw material inventory, lower-cost stock from prior periods protected margins in this quarter. Consequently, both Castrol and Gulf warned that full impact of feedstock inflation would be delayed and flow more noticeably into subsequent quarters, making pricing vigilance and strategic price hikes essential next steps.

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