Oil Marketing Companies (OMCs) such as HPCL, BPCL, and IOC have finally received a much-needed breather. In a recent development, Union Petroleum Minister Hardeep Singh Puri made strong remarks at a public event that could significantly boost investor sentiment and the financial health of these companies. He expressed confidence that the Finance Ministry would soon release compensation for losses incurred by OMCs due to LPG under-recoveries, signaling a policy shift that could alter the trajectory of these firms.
OMCs have been reeling under financial strain for several years due to the gap between the cost of procuring subsidized LPG and the price at which they sell it. This gap—known as LPG under-recovery—has led to massive losses. The last major subsidy payment from the government came during FY22, amounting to just ₹2,500 to ₹3,000 crore. Since then, the companies have been left to absorb mounting losses with no direct financial support.
As per estimates, in FY23 alone, oil marketing firms suffered LPG-related losses to the tune of ₹28,000 crore. In FY24, the loss stood at ₹400 crore, while FY25 saw another sharp spike with estimated under-recoveries of nearly ₹41,000 crore. Looking ahead, FY26 is expected to bring in further losses, projected at around ₹300 crore from LPG operations.
These staggering numbers have made it difficult for OMCs to manage operations profitably. The consistent under-recoveries have put immense pressure on their balance sheets, making it harder to fund expansion or absorb international crude price fluctuations.
Recognizing the gravity of the situation, the Petroleum Ministry has stepped in with strong support. The minister’s assurance that the compensation will likely be approved soon by the Finance Ministry is being seen as a key turning point. The anticipated amount could range between ₹3,000 crore and ₹3,500 crore, providing partial relief for accumulated losses.
Moreover, the government has recently taken another corrective step by increasing LPG prices by ₹50 per cylinder. While this may seem minor on the surface, analysts estimate that this move alone could reduce the loss burden of OMCs by nearly ₹10,000 crore. Looking forward, the price adjustment could help these companies generate up to ₹9,000 crore in FY26, provided international oil prices remain stable.
Market experts also noted that with geopolitical tensions easing, global oil prices have begun to stabilize. This is another positive factor that could help OMCs balance their books more efficiently. Stocks like HPCL and IOC have already reflected this positive sentiment, closing in the green despite overall market weakness.
In short, this is a developing story with major implications. If the Finance Ministry does approve the proposed compensation package, it would be the first significant subsidy release in over two years and a crucial step toward restoring financial health in India’s oil marketing sector.
Investors and stakeholders will now be watching closely for the official announcement and any further pricing decisions, which could influence the sector's outlook in the quarters to come.
Disclaimer:
This article is for informational purposes only and does not constitute investment advice. Readers are advised to consult with their financial advisor before making any investment decisions. The figures mentioned are based on estimates and publicly available information and may be subject to change.
