Whalesbook
Margin Compression and Under-recoveries
Retail fuel prices in India, which have remained unchanged, offer no relief as international crude oil prices have surged past USD 120-125 per barrel. This creates a deficit for Oil Marketing Companies (OMCs), squeezing their marketing margins.
Prashant Vasisht from Icra highlighted that the marketing margins on petrol are estimated to be a negative ₹14 per litre, while diesel incurs a loss of ₹18 per litre at these crude price levels. The impact extends beyond petrol and diesel. Under-recoveries for cooking gas (LPG) are projected to reach ₹80,000 crore in fiscal year 2027 if current trends persist. The fertiliser subsidy burden is also escalating, estimated to rise to ₹2.05-2.25 lakh crore, significantly above the budgeted ₹1.71 lakh crore.
Sectoral Outlook Deteriorates
Elevated raw material and energy costs are exerting pressure across multiple downstream industries. Icra's outlook for fuel retailing, fertiliser, basic chemicals, and petrochemical sectors has turned negative. The fertiliser sector, in particular, faces sharp cost escalations driven by higher sulphur, ammonia, and natural gas prices. Urea pool prices have jumped from USD 13 per million British thermal units (MMBTU) to around USD 19/MMBTU before the West Asia crisis intensified.
City gas distributors are also feeling the pinch. While household piped natural gas (PNG) margins remain relatively stable due to priority allocation, compressed natural gas (CNG) margins are expected to weaken as cost increases are only partially passed on to consumers.
Geopolitical Risk and Supply Chain Woes
Supply disruptions in critical trade routes, such as the Strait of Hormuz, which handles about 20 per cent of global oil and LNG trade, are tightening fuel availability. This has intensified price pressures across downstream industries. Icra notes that the credit profiles of companies in these segments could weaken if margin pressures persist. Relief is contingent on a de-escalation of geopolitical tensions and a normalization of global supply chains.