In India there are 3 big Oil Marketing Companies (OMCs): Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation Limited   (HPCL), and Bharat Petroleum Corporation Limited (BPCL).

Core Business: Marketing of oil.

In addition to pure marketing, these companies also refine and market oil that they buy from upstream oil exploration and production companies including from ONGC, Oil India, Reliance Industries, Cairn India etc. Their purchase price is directly related to international crude price. Thus lower prices are actually positive for oil marketing companies.

OMC revenues will improve if oil price continues to fall as this results in (i) reduction in their purchase price (of crude oil) (ii) improves refining margins i.e. difference between the price of what refineries produce and the price of crude oil; (iii) improves marketing margins.

OMCs are not free to decide their selling price but instead they are compelled to sell the products (petrol, diesel etc) at discounted rates.

Under Recoveries – The difference between OMCs purchase price and the discounted rates i.e. actual selling price realized (excluding taxes, dealer commission) represents ‘under-recoveries’ of OMCs. This amount of under recovery is paid to the OMCs by the Government of India.

Note: Much is made about under recoveries for OMCs both in terms of government losses and how it is good for stock prices of OMCs. The truth is that post deregulation, OMCs are now incurring under recoveries only on the sale of, PDS kerosene and domestic LPG. Price of petrol was made market determined effective June 26, 2010, there is no under recovery related subsidy payment for petrol by the government since then. The price of diesel has also been completely deregulated effective October 19, 2014. However, the Government has increased excise and VAT on petrol, diesel and other oil products to keep the retail prices much higher than the price of not only crude oil but also that of the refined petrol and diesel.

Decoding the Under Recoveries Myth


Before deregulation, OMCs were losing Rs. 7.16/Litre on diesel whereas the government was earning Rs. 9.97/Litre in the form of Excise Duty and VAT.

Out of this tax, the government reimbursed OMCs Rs. 7.16/Litre, earning only Rs. 2.81/Litre in taxes.


DIESEL (Rs. /Litre)

PETROL (Rs. /Litre)

After deregulation of diesel and petrol, government earns a net of Rs. 17.58/Litre on diesel and Rs. 31.29/Litre on petrol.



Problem – Any excess consumption of petrol and diesel is ultimately detrimental to the environment. This means that they cannot advertise their products beyond a point. Ideally, a marketing team’s mandate should be to SELL, SELL AND SELL. This is not the case here.

Oil Marketing Companies are in a zone of ‘Restricted marketing’NOTE that OMCs earn most of their revenue from marketing.

This leaves little room for growth. They can neither market to expand the market size which basically grows on its own (with growth in population); nor can they decide their selling price i.e. the marketing margin is determined by the Government keeping ‘public popularity perception’ in mind.

In order to create their brand awareness and to intensify their sales, oil marketing companies launch a host of sales promotional schemes like discounts, loyalty programs and media commercials. All this is meant to fight each other and to earn a higher market share than their competitor (there are only 3 players in the space, each Government owned!).

Comparative Financial Performance of Indian Oil Marketing Companies (FY 2015) Figures in Rs. Crores.

Particulars  IOCL BPCL HPCL
Revenue 4,49,509 2,42,599 2,16,594
Operating Profit 10,536 9,778 4,694
PAT 4,912 4,807 1,499
EPS 20.23 66.47 44.25
Net Worth 68,832 22,562 13,924
Total Debt 36,796 19,342 28,536
Operating Profit Margin (In %) 2.34 4.03 2.17
Net Profit Margin (In %) 1.08 2.09 0.69
ROCE (In %) 16.25 22.64 11.03
ROE (In %) 10.43 21.30 10.76
Interest Coverage Ratio 2.52 8.28 2.56
Current Ratio 0.97 0.90 1.09
Debt/Equity Ratio 0.53 0.81 2.03

 Indian Oil Financial Performance (in Rs. Crores)

Particulars  FY 2013 FY 2014 FY 2015
Revenue 461,780 488,345 449,509
Operating Profit 13,768 17,057 10,536
PAT 4,449 7,086 4,912

 BPCL Financial Performance (in Rs. Crores)

Particulars  FY 2013 FY 2014 FY 2015
Revenue 242,181 264,407 242,599
Operating Profit 6,672 9,359 9,778
PAT 1,881 3,911 4,807

 HPCL Financial Performance (in Rs. Crores)

Particulars  FY 2013 FY 2014 FY 2015
Revenue 216,154 234,159 216,594
Operating Profit 4,173 5,273 4,694
PAT 501 1,080 1,499


There is no game here, Its much ado about nothing – Stock price of OMCs are inversely related to crude oil prices and will always move in line with crude oil prices. This means that they will remain in a range which could be 20-40% lower/ higher than percentage change in crude oil prices.

Source: Petroleum Planning & Analysis Cell

If at all they fall below or rise above that range, it may well be on account of ‘market perception’ and ‘economic environment’.

Falling crude oil prices have benefitted the Indian OMCs as their borrowings have declined 36 % from Rs 1, 38,749 Cr. in FY 2014 to Rs 99,681 Cr. in FY 2015.

(Source – Petroleum Planning & Analysis Cell | Snapshot of India’s Oil & Gas data | October 2015).

The result is clear in their stock price performance below:

Shares of OMCs rose significantly over the last one year period. HPCL witnessed its share prices jump 53.59 %, BPCL and Indian Oil rose by 26.21 % and 22.19 % respectively.


Crude oil price is down 48 % in the last one year period (U.S. $78.27 on November 24, 2014 and U.S. $41.61 on November 24, 2015). This has not trickled down to retail prices with the price of petrol down only by 6% and that of diesel by down only 13%.

Year Crude  Prices 

(US $/bbl.)

Petrol Prices 


Diesel Prices 


FY2005 39.21 37.99 28.22
FY2006 55.72 47.51 32.47
FY2007 62.46 42.85 30.25
FY2008 79.25 45.56 31.80
FY2009 83.57 44.72 32.87
FY2010 69.76 47.93 38.10
FY2011 85.09 58.37 41.12
FY2012 111.89 73.18 41.29
FY2013 107.97 70.74 48.67
FY2014 105.52 73.16 55.48
FY2015 84.16 60.49 49.71
Nov-15 41.61 60.70 45.93