Budget 2025: No LPG Compensation To Result In Heavy Losses For OMCs

Analysts expect the Union Budget 2025 to address a major issue that has been hurting the profitability of oil marketing companies like Indian Oil, Bharat Petroleum Corp., and Hindustan Petroleum Corp.

The OMCs have been facing losses on their LPG sales all of FY25 due to the ministry regulations. Macquarie and IIFL Securities' analysts expect compensation for these losses to come through in the upcoming Budget.

Currently, LPG prices in India are subsidised to ensure affordability for domestic consumers. Oil companies like Indian Oil, Bharat Petroleum and Hindustan Petroleum not only produce their own LPG, but also import it from international sources and sell it domestically.

Thus, higher production costs, as well as import costs, exert pressure on the companies' profitability in the segment as the domestic selling prices remain capped.

In the first half of financial year 2025, Bharat Petroleum and Hindustan Petroleum made LPG losses of Rs 4,100-4,200 crore. Indian Oil's losses stood higher at around Rs 8,800 crore. In Q3FY25, IOCL, BPCL and HPCL's LPG losses stood at Rs 5,100 crore, Rs 3,100 crore and Rs 3,100 crore, respectively.

If the Budget announces no such compensation, NDTV Profit calculations suggest that Bharat Petroleum and Hindustan Petroleum could see annual losses on LPG sales between Rs 9,600 crore and Rs 9,700 crore in financial year 2025, while Indian Oil could see the highest loss of around Rs 18,000 crore.

While the government did provide the oil marketers compensation of Rs 22,000 crore in FY23, no relief was announced in FY24. Analysts from Macquarie and IIFL Securities now expect the upcoming Budget to include some LPG compensation for the companies.

Macquarie notes that any compensation this year would be a positive for OMCs, with Indian Oil being the largest beneficiary.