OMCs Still Losing Money on Fuel Sales
Oil marketing companies (OMCs) are still struggling with low profits, even after the government recently adjusted prices for Aviation Turbine Fuel (ATF) and commercial Liquefied Petroleum Gas (LPG). The estimated loss on domestic ATF sales is large, about ₹64 per litre, which is like losing $109 per barrel. Although ATF is a small part of their total sales, these losses add up to significant annual figures for companies: Indian Oil Corporation (IOCL) faces an estimated ₹23,600 crore loss, Bharat Petroleum Corporation (BPCL) about ₹9,500 crore, and Hindustan Petroleum Corporation (HPCL) around ₹5,300 crore.
Even though commercial LPG prices have risen about 10% and are closer to covering costs, losses on domestic LPG cylinders have grown to around ₹380 each. This increases the subsidy the government has to pay. This problem is visible in their stock prices: HPCL shares dropped 21%, IOCL fell 24%, and BPCL slumped 25% last month, performing much worse than the BSE Sensex's 8.8% decrease. As of March 2026, OMCs like HPCL, BPCL, and IOCL trade at P/E ratios between 4.8x and 9x, showing that investors are worried about their ability to keep making money. Recent cuts in excise duty offer some help, but they don't fix the core issue of high costs from global crude prices near $106.7 per barrel and a weaker rupee.
Growing LPG Shortfalls Strain Government Budget
The growing loss on domestic LPG sales creates a bigger budget challenge for the Indian government. With losses of about ₹380 per cylinder, the cost of subsidies is rising. The government's reimbursements for these costs are often delayed, leading to budget uncertainty. Rating agency ICRA predicts that LPG shortfalls could reach about ₹200 billion in FY2027, adding more pressure on government spending plans. Relying on subsidies for basic energy can distort market signals and affect the economy. However, past studies indicate that removing LPG subsidies might not significantly impact GDP growth.
City Gas Firms Face Different Futures
The future looks different for city gas distributors (CGDs), mainly because of how gas is priced in India and global LNG market changes. The price of government-set gas (APM) has risen to $7 per mmbtu, and prices for newly developed gas (NWG) have jumped to $12.91 per mmbtu, making things complicated. Mahanagar Gas (MGL) is in a stronger position because it uses more cheaper gas linked to Henry Hub prices, which helps protect it from price swings. In contrast, Indraprastha Gas (IGL) uses more gas tied to Brent crude prices, and Gujarat Gas is most vulnerable because it relies on costly spot LNG.
City gas stock prices have dropped significantly recently. MGL and Gujarat Gas shares are down nearly 22% each, and IGL is down 11% in the last month. Over the past year, CGD stocks have performed poorly, falling up to 31%, with MGL and IGL taking the biggest hits. This reflects industry-wide problems, like fewer APM gas allocations and higher global LNG prices, forcing CGD companies to use more expensive imported gas. This hurts their profits. IGL, for example, trades at a P/E ratio of about 12.30x.
Petronet LNG Expands, RIL Gets Tax Break
Petronet LNG has completed a major 5 million tonne per year expansion at its Dahej terminal, increasing its total capacity to 22.5 mtpa. This expansion increases India's gas import capacity and energy security amid global uncertainty. Petronet LNG shares rose 5.2% on April 1, 2026, helping to recover from a sharp monthly drop.
In an important development, Reliance Industries (RIL) is exempt from the new tax on company profits for its Special Economic Zone (SEZ) refinery operations. While this tax will affect refining profits for other companies, RIL's SEZ unit, which handles most of its diesel and jet fuel for export, is not affected. This provides RIL with a major advantage, letting it maintain strong refining profits from healthy product prices, unlike OMCs or other refiners. RIL trades at a P/E of about 23.0x, showing its strong business model and refining capabilities.
Why OMCs Struggle: Weaknesses and Rules
The ongoing losses for OMCs, even with price changes, show an underlying weakness. The government's refusal or inability to pass the full cost of imported crude oil to consumers, especially for domestic LPG, results in a constant subsidy cost. This has happened before; past data shows large shortfalls when global prices rose sharply. The Petroleum and Natural Gas Regulatory Board (PNGRB) and the Directorate General of Hydrocarbons (DGH) oversee the industry, aiming to balance market rules with consumer needs. However, the current situation creates ongoing financial strain. The recent ATF price increase, though large, is still not enough to cover costs. This could lead to more pressure on airlines and higher subsidy demands on the government if global prices keep rising.
Future Outlook and Analyst Views
Nomura's early view sees margin pressure for OMCs and a mixed future for CGDs. The large losses on domestic LPG suggest a continuing budget challenge that might require more government action or reforms. India's plan to diversify its energy sources and new rules, such as the Petroleum and Natural Gas Rules, 2025, aim to attract investment and make business easier. Analysts point out that upstream companies like ONGC and Oil India are doing well, helped by global events and strong domestic output. However, downstream players like OMCs face risks from price swings and subsidies. For CGDs, the main challenge will be balancing increasing sales volume with profitability, given changing gas prices and regulations.