HPCL, BPCL, Indian Oil get relief on LPG under-recoveries — Check analysts top picks

Shares of Oil Marketing Companies (OMCs) are trading mixed on Monday, August 11, as brokerages are positive on the sector after the government approved the ₹30,000 crore compensation for LPG under-recoveries.

This is lower than the ₹41,300 crore of under-recoveries borne by OMCs till date. However, it is unclear if this is a one-time grant or the remaining losses would be compensated as well.

Morgan Stanley

The brokerage said the government allocated the anticipated ₹30,000 crore for cooking-gas-related under-recoveries, with payments in 12-month installments.

This implies that policy stability via ad hoc nature of payments still remains a challenge, the brokerage said.

The subsidy should de-lever fuel retailers' balance sheets by 12% and more importantly, it highlights the consistent 14%-15% return on capital employed (ROCE) via oil price cycles, it added.

Morgan Stanley said it prefers Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL) among the refiners and while cooking gas recoveries increase risks of fuel price cut, it sees limited impact for a ₹1-2/litre price cut.

Jefferies

Jefferies said the government approving the ₹30,000 crore LPG loss compensation over FY26-27 is a major positive development for OMCs.

It said that even though it is lower than the ₹41,300 crore LPG losses incurred to date, it will boost the earnings of OMCs sharply. It added the companies continue to benefit from inflated marketing margins on auto fuels.

Jefferies has maintained "buy" ratings on BPCL, which is its preferred pick on favourable valuation, and Indian Oil Company Ltd (IOCL).

ICICI Securities

The brokerage said LPG compensation is a material boost to fortunes, it helps offset margin worries for FY26.

UBS

UBS said the wait has paid off for OMCs, with the Centre's LPG loss compensation announcement.

It said the payment is equal to 74% of the FY25 dues and 62% of the dues accumulated by the OMCs till the end of June 2025, which will be made available in 12 tranches, which would possibly be monthly.

The same would be ₹14,000 crore for IOCL, ₹8,000 crore for BPCL and HPCL each, in the ratio of 47% and 26.5% with regards to their LPG sales volumes, respectively.

It is equivalent to 8%, 10% and 16% of the June 2025 book value of IOCL, BPCL and HPCL, respectively, it said. The same is also equivalent to 7%, 6% and 9% of the three OMCs, respectively, it added.

Here's a roundup of all the analysts' coverage on OMCs: 

On another note, the subsidised LPG cylinders under the PM Ujjwala Scheme has been cut from 12 to nine. The eligible households will now receive a ₹300 subsidy per 14.2 kg cylinder for up to nine refills annually.

While HPCL shares were down 1.2%, BPCL and HPCL shares were up nearly 0.2%, each, around 11.05 am on Monday.

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