OMCs drag India Inc earnings. What would Q1 have looked like without them?

The oil marketing companies' (OMCs) ₹16,600-crore loss has casted a shadow over the India Inc's earnings for the first quarter ended June, shows an early trend analysis by Motilal Oswal Financial Services (MOFSL). 

 

MOFSL universe reported just 2 per cent earnings growth based on the interim analysis of 211 companies compared with the estimates of a 10 per cent decline. But strip out losses at Indian Oil, Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL), and earnings growth jumps to 17 per cent, suggesting that one sector has disproportionately masked the health of corporate India.

 

The overall MOFSL earnings growth was fuelled by the financials (including banks, financial services and insurance players) pack, which grew 20 per cent, along with sustained performance in metals, a rebound in technology and strong show from automobiles. The metal segment saw a 57 per cent Y-o-Y growth, along with 11 per cent and 7 per cent rise in IT and auto sectors, respectively.

 

 

On the flip side, MOFSL analysts Deven Mistry and Aanshul Agarawal highlighted that apart from OMCS, cement (down 8 per cent Y-o-Y), healthcare (down 6 per cent Y-o-Y) and IndiGo weighed on overall earnings. 

 

Can OMCs' poor performance continue in Q2?

Elevated crude prices against the backdrop of the West Asia crisis remained the key factor that roiled the OMCs' Q1 earnings performance. 

 

IOCL posted a standalone net loss of ₹1,141 crore, BPCL of ₹3,962 crore and HPCL of ₹11,526 crore.

 

The Indian crude basket averaged $100.7 per barrel, up 21.4 per cent sequentially, while pump prices stayed frozen, forcing marketing under-recoveries and inventory losses. Refining held up, suggesting a pricing problem rather than an operating one. 

 

Nitant Darekar, Research Analyst at Bonanza, said OMCs' Q1 FY27 losses are cyclical and not structural in nature. 

 

He added that for this trend to reverse, three things are needed: Crude sustaining below $80, continued calibrated pump price hikes on top of the roughly ₹7.5 per litre already taken, and timely cash compensation on LPG. Absent these, losses can persist into Q2 FY27, with sharply higher working capital debt an added drag, he cautioned. 

 

G Chokkalingam, founder, Equinomics Research, said that OMCs' performance is closely linked to the West Asia conflict. He added that while weakness could be seen for the next 1-2 quarters, beyond that things could improve further as oil prices would fall significantly.

 

Broader earnings momentum intact

That said, analysts believe the broader earnings momentum is intact. 

 

While the Q1 FY27 interim earnings have been better than MOFSL's estimates, what's even more encouraging is the intensity of moderation in earnings cuts. Further, the beat-miss ratio for the MOFSL universe remains favourable, as about 49 per cent of the companies exceeded its estimates, while 22 per cent reported a miss at the PAT level.   Also Read | Corp earnings may see low double-digit growth in FY27

 

"We firmly believe that this is a bottom-up market, despite India experiencing both time and price corrections relative to EM peers. We are OW on Diversified Financials, Automobiles, New Age Tech Platforms, Manufacturing & Industrials, and Consumer Discretionary sectors. In contrast, we are UW on Private Banks, Consumer Staples, Energy/Telecom, Commodities, Utilities, and Renewables," it added.

 

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