Excise Duty Cut: HPCL, BPCL, IOC shares reverse gains and turn negative; Here's how it impacts them

Shares of India's oil marketing companies, Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd. (BPCL) and Indian Oil Corporation Ltd. (IOC), rose up to 4% after the government has announced a cut to excise duty imposed on petrol and diesel. However, these stocks gave up all of their early gains to trade with losses.

The excise duty on petrol has been cut to ₹3 per liter from ₹13 per liter earlier, while the excise duty on diesel has been cut to Nil from ₹10 earlier.

Shares of HPCL reversed gains of as high as 5% to trade only 0.4% higher, while those of BPCL and Indian Oil are also trading 0.4% higher and 1.1% lower respectively after the initial gains.

Impact Of Lower Excise Duty

A lower excise duty impacts cost the cost burden for oil marketing companies, and with pump prices unlikely to change, the benefit is also retained.

Lower cost component would mean that marketing margins of these companies would expand, aiding cash flows, and thereby aiding their balance sheet.

The rise in crude oil prices to levels of as high as $120 a barrel, due to the Iran war, hurt oil marketing companies, which received a slew of downgrades from brokerages across the street as they were making negative margins on both petrol and diesel.

OMC Balance Sheet

Currently, balance sheets of oil marketing companies are strong, with BPCL's net-debt-to-equity ratio at 0.3 times as of financial year 2025.

The same ratio for IOC stood at 0.8 times and at 1.4 times for HPCL as of the previous financial year.

In an interaction with CNBC-TV18 on Friday, former HPCL CMD MK Surana said that it is unlikely that fuel prices are cut at the pump level even after the excise duty cut.

Surana said that the under recoveries for OMCs are much higher with crude prices rising above $100 a barrel.

Higher crude prices, paired with under recoveries due to steady pump prices are likely to have an impact on the liquidity for Oil Marketing Companies, Surana said.

Fiscal Hit To Government

According to Madhvi Arora of Emkay Global Financial Services, the annualized fiscal hit will be around ₹1.55 lakh crore due to this move.

The move will absorb around 30% to 40% of the annualized losses of OMCs on auto fuels based on the current prices.

Shares of HPCL and BPCL gained as much as 4% each before cooling off.