The West Asia conflict severely impacted India’s supply of liquefied petroleum gas (LPG) forcing the world’s top energy consumer to procure costly cargoes to meet domestic demand, which is expected to push up under recoveries of the PSU oil marketing companies (OMCs).
Ratings agency ICRA estimates domestic LPG under recoveries at ₹80,000 crore for FY27, if the current under recoveries continue for the entire fiscal year.
Prashant Vasisht, Senior VP & Co-Group Head at ICRA, said “With supplies of LPG blocked from West Asia, international LPG prices have surged. While LPG production has been increased by the refining companies and cargoes procured from the US, Australia etc., addressing the supply side issues to an extent, under recoveries on sale of domestic LPG remain high for the OMCs.”
Another pain point, explained Vasisht is the fertiliser subsidy, which is projected to rise to ₹2.05-2.25 lakh crore for FY27 with an upward basis.
“Significant raw material price inflation coupled with inadequate subsidy revision, is set to moderate the profitability of the P&K fertiliser players vis-à-vis FY26 levels, “ he added.
Kharif season
The expected impact of El-Nino on monsoon in the upcoming Kharif season, may also affect the ability of farmers to absorb price increases.
“With the sharp raw material price inflation for both the urea and non-urea fertiliser segment, ICRA estimates the subsidy requirement for FY27 at ₹2.05-2.25 lakh crore, with an upward bias. We expect the Government of India to enhance the allocation towards fertiliser subsidy during FY27, from the budgeted ₹1.71 lakh crore, to maintain a stable credit profile for this sector,” he added.
On marketing losses of OMCs for selling petrol and diesel, Vasisht said that stable pump prices for auto fuels amid elevated crude oil prices is impacting OMC profitability despite the recent reduction in excise duty.
“At crude prices of $120-125 per barrel and long-term averages of crack spreads, the marketing margins on petrol and diesel are estimated to be negative ₹14 per litre and ₹18 a litre, respectively,” he added.
The City Gas Distribution (CGD) sector, although protected to some extent owing to preferable natural gas allocation, continues to face rising cost pressures amid currency depreciation and rising gas prices.
overall outlook
“For the CGD entities, ICRA expects the profitability on PNG-Domestic (PNG-D) to remain stable as the demand is being met through preferential allocation of the Administered Price Mechanism (APM) gas. However, for the CNG segment, the margins are expected to face headwinds on account of the increased gas costs as well as currency depreciation, which may not get passed on fully to the consumers,” ICRA added.
Overall, ICRA’s outlook on the crude oil refining segment remains stable supported by adequate refining margins owing to healthy product cracks while the outlook on the fuel retailing segment remains negative driven by the steeply negative marketing margins on the sale of auto fuels.
Additionally, ICRA’s outlook on the fertiliser, basic chemicals and petrochemical sector also remains negative driven largely by expectation of moderation in the profitability driven by a mix of reason i.e. inadequate subsidy for the fertiliser sector, elevated raw material prices for petrochemical sector and global oversupply for the basic chemicals sector, Vasisht added.
Published on April 29, 2026