HPCL, BPCL, and IOC: The Potential Impact of US-Iran Tensions on Indian Oil Marketing Companies' Profitability Ahead of Q4 Earnings

Oil Marketing Companies Face Weaker Earnings Amid US-Iran War

The ongoing US-Iran war has cast a shadow on the earnings outlook of oil marketing companies (OMCs) in India, with shares of three PSU oil refiners plummeting by 18-32% in the March quarter. The US-Iran conflict, which began in the last quarter of the March fiscal, has led to a surge in crude oil prices, affecting the earnings of downstream players like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Limited (HPCL), and Bharat Petroleum Corporation Limited (BPCL).

The earnings of OMCs in Q4 FY26 are expected to be weaker due to higher retail fuel losses and a sharp rise in LPG under-recoveries, but partially offset by strong gross refining margins (GRMs). According to estimates by ICICI Securities, the profit after tax (PAT) and EBITDA for the OMCs likely declined 56% and 82% year-over-year (YoY), respectively, as retail margins shrunk to ₹2.9 per litre for petrol and a loss of ₹6 for diesel due to a spike in global crude oil prices and rupee depreciation.

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The imposition of excise duty of ₹21.5 and ₹29.5 per litre on diesel and ATF exports, respectively, limits OMCs' ability to fully benefit from stronger crack spreads. However, the excise duty cut of ₹10/litre on domestic sales of petrol and diesel towards the end of Mar'26 provided partial relief.

Analysts are sharply divided in their estimates of BPCL's Q4 performance. While ICICI Securities sees a 64% YoY decline in profit and 51% moderation in the operating profit, Nuvama Institutional Equities expects the bottomline to grow 18.5% to ₹3807.1 crore. However, it sees EBITDA falling 14.6% on a yearly basis.

Prabhudas Lilladher expects BPCL's adjusted PAT for Q4 FY26 to decline 2.5% YoY, while ICICI Securities predicts the oil PSU company to post a loss of ₹310 crore. Nuvama, meanwhile, expects HPCL's EBITDA to fall by 43% YoY and profit by 64% YoY, impacted by similar reasons.

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For investors positioning ahead of Q4, BPCL appears best placed tactically, while IOC suits conservative investors seeking yield. Prabhudas Lilladher recently upgraded HPCL to 'buy' from 'accumulate' in its Q4 preview report, saying that HPCL's improving operational efficiency and completion of major projects remain positive. Recent price correction also offers a better entry opportunity, it added.