PL Capital Sees Strong Q1 Tailwinds for OMCs, Reliance as Oil Prices Ease
- 4th July 2025
- 06:30:00 PM
- 5 min read
Mumbai | July 4 – India’s oil and gas sector is poised for a robust Q1FY26 earnings season, with PL Capital projecting a 122% year-on-year surge in EBITDA for oil marketing companies (OMCs) despite lower sales, as easing crude oil prices expand marketing margins and sharply reduce LPG under-recoveries.
Brent crude averaged $68/bbl during Q1FY26, down from $75.7/bbl in Q4FY25, amid global growth concerns and additional OPEC+ supply. This has benefitted downstream players like IOC, BPCL, and HPCL, even as upstream companies ONGC and Oil India face realization headwinds.
“Even when Brent had dipped below $60/bbl briefly, we had suggested it would stabilise in the $70–80/bbl band. Brent has already reached $68/bbl despite additional OPEC+ supply,” PL Capital noted in its latest report.
OMCs Set for Margin-Driven Earnings Jump
OMCs are expected to post 34% sequential and 122% annual EBITDA growth, driven by higher marketing margins on petrol and diesel and a sharp decline in LPG under-recoveries from ₹121 billion in Q4FY25 to ₹45 billion in Q1FY26.
HPCL is projected to record the sharpest QoQ EBITDA jump at 54%, while BPCL’s marketing margins are estimated to rise from ₹5.9/litre to ₹7.6/litre, and HPCL’s from ₹4.6/litre to ₹7.4/litre. IOC is also expected to benefit, although PL Capital remains cautious on the sustainability of these elevated margins.
“OMCs will enjoy near-term tailwinds from lower crude, but gross marketing margins may decline and LPG under-recoveries may rise from here as oil prices firm up,” PL Capital highlighted.
Reliance Industries: Resilient Despite Crude Softness
Reliance Industries (RIL) is expected to report a 16% YoY EBITDA growth, driven by higher Singapore GRMs, which rose to $5.8/bbl in Q1FY26 from $3.1/bbl in Q4FY25, and improved petrochemical spreads.
Petrochemical deltas expanded 15–23% QoQ, with PE-Naphtha spreads rising to $350/mt and PP-Naphtha to $360/mt, aiding RIL’s earnings even amid a one-month shutdown at one of its crude units. Standalone EBITDA is projected to increase to ₹162 billion, while Jio is expected to deliver steady ARPU gains with EBITDA at ₹179 billion, and retail is likely to remain stable.
“Both benchmark SG GRM and petrochemical deltas have strengthened QoQ, supporting RIL’s standalone performance this quarter,” PL Capital stated.
Upstream: Pressured Realizations, Stable Operations
For ONGC and Oil India, lower crude prices are likely to result in an 8% YoY decline in combined sales, although normalized costs and stable production will cushion operating performance. ONGC’s EBITDA is projected to remain stable at ₹187.6 billion, while Oil India’s EBITDA is expected to rise 23% QoQ to ₹24.4 billion.
PL Capital, however, cut its FY26 PAT estimates for both companies by ~8%, citing lower exchange rates, production estimates, and realization assumptions.
CGD Players to Benefit from Lower Sourcing Costs
City gas distributors (CGDs) are poised for margin expansion due to lower sourcing costs:
- MGL’s EBITDA/scm may rise from ₹8.3 to ₹10.5,
- IGL’s from ₹6 to ₹6.5,
- Gujarat Gas from ₹5.4 to ₹7.4.
Volume growth remains mixed, with MGL and IGL set to post YoY increases while Gujarat Gas may face a 15% decline in volumes due to pricing dynamics.
Q1FY26 Snapshot
| Company | Sales (₹ bn) | EBITDA (₹ bn) | PAT (₹ bn) | YoY PAT Growth | QoQ PAT Growth |
| IOC | 1,905.5 | 171.8 | 92.9 | +252% | +28% |
| BPCL | 993.2 | 102.6 | 61.9 | +105% | +93% |
| HPCL | 1,012.3 | 89.2 | 53.3 | +1,397% | +59% |
| RIL | 2,275.9 | 451.0 | 202.7 | +34% | +5% |
| ONGC | 322.0 | 187.6 | 95.9 | +7% | +49% |
| Oil India | 56.3 | 24.4 | 15.6 | +6% | -2% |
| GAIL | 355.3 | 32.3 | 20.3 | -25% | -1% |
| MGL | 18.4 | 4.0 | 2.8 | -1% | +11% |
| IGL | 39.2 | 5.4 | 3.8 | -5% | +9% |
| Gujarat Gas | 43.0 | 6.3 | 3.9 | +18% | +35% |
PL Capital View
PL Capital has reiterated Oil India as its top pick (Buy, TP: ₹566) in the oil & gas space, supported by stable volumes and a favourable Brent band. ONGC is rated ‘Accumulate’ (TP: ₹284), providing value amid stable production and attractive valuations.
Reliance Industries is rated ‘Hold’ (TP: ₹1,479), with its robust refining and petrochemical spreads balanced by current valuations.
Among OMCs, PL Capital maintains a ‘Reduce’ on IOC (TP: ₹138) and BPCL (TP: ₹311), and a ‘Sell’ on HPCL (TP: ₹360), citing near-term tailwinds but medium-term caution as oil prices stabilize and marketing margins potentially soften.
In CGDs, the brokerage holds a ‘Hold’ on MGL (TP: ₹1,425), a ‘Reduce’ on IGL (TP: ₹186), and a ‘Sell’ on Gujarat Gas (TP: ₹404), reflecting cautious volume and margin dynamics despite sourcing cost benefits.
For GAIL, PL maintains a ‘Hold’ (TP: ₹184) on expectations of flattish operational performance amid muted volume growth.
Outlook
Q1FY26 is shaping up for a strong quarter for OMCs and Reliance Industries, driven by lower crude prices and margin tailwinds. However, investors will closely track global crude price trends, refining spreads, and domestic demand trends to gauge sustainability.
Those monitoring oil prices, Reliance Industries performance, ONGC earnings, and OMC profitability will find the Q1FY26 results pivotal in assessing India’s energy sector resilience amid evolving global dynamics.
PL Capital
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
