Despite recent optimism surrounding a potential US-Iran peace deal, India's major oil marketing companies (OMCs)—Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), and Indian Oil Corporation Ltd (IOC)—are still navigating significant headwinds. PL Capital has downgraded IOC and BPCL to 'Reduce' and HPCL to 'Hold' from 'Accumulate', citing weak near-term earnings visibility.
The brokerage firm anticipates a sharp decline in profitability for the June quarter, which is expected to impact full-year earnings. Key concerns include persistent uncertainty around the US-Iran nuclear deal and reports of the Strait of Hormuz being declared shut, despite subsequent talks between US and Iranian teams.
Profitability Challenges and Under-recoveries
PL Capital forecasts substantial under-recoveries for OMCs in Q1FY27, estimating Rs 7 per litre for petrol and Rs 10 per litre for diesel, even after accounting for a Rs 10 per litre excise duty cut. LPG continues to be a major pain point, with losses projected at approximately Rs 500 per cylinder for the quarter. This follows reported LPG under-recoveries of Rs 610-670 per cylinder in May, significantly higher than Rs 170 per cylinder in April, exacerbated by an expected 47 percent quarter-on-quarter increase in Saudi CP prices for Q1FY27 due to West Asia supply constraints.
Crude Oil Volatility and Strategic Reserves
While Brent crude prices recently dipped to $80 a barrel, their lowest since March 2026, PL Capital cautions that this trend could reverse. InCred Equities suggests that the Iran situation might introduce a permanent risk premium on crude oil, benefiting countries like Russia and the US as buyers diversify away from Gulf supplies. Furthermore, countries that depleted their Strategic Petroleum Reserves (SPRs) and inventories during recent conflicts are likely to begin rebuilding stocks, which could create additional demand and support crude prices. This inventory replenishment could offset some near-term supply-driven pressures.
Outlook and Share Price Targets
The potential rollback of the Rs 10 per litre excise duty cut remains a significant pressure point for OMCs, although a phased approach is expected. PL Capital has set target prices of Rs 126 for IOC, Rs 384 for HPCL, and Rs 291 for BPCL, reflecting the challenging environment. The brokerage emphasizes that while a positive resolution to the US-Iran situation could soften crude prices, the anticipated replenishment of global oil inventories is likely to drive prices higher again in the medium term, creating incremental demand in the market.