The government has moved to cushion India’s oil marketing companies with a significant excise duty reduction and a new windfall tax on refined product exports. Which companies gain the most? Here is what Nomura says
With crude oil prices surging on the back of the Iran-US-Israel conflict and pump prices held artificially stable, India’s oil marketing companies have been bleeding at the marketing level for weeks. On March 27, the government responded with a two-part intervention that Nomura describes as meaningful but not yet sufficient to restore positive integrated margins across the board in a note.
The first move was a Rs 10 per litre excise duty cut on both petrol and diesel. The second was the introduction of a Special Additional Excise Duty — also known as the Windfall Tax — on exports of diesel and Aviation Turbine Fuel, set at Rs 21.5 per litre and Rs 29.5 per litre respectively, to be adjusted fortnightly based on global prices.
Taken together, Nomura notes in its report, the measures provide “meaningful” relief to oil marketing companies — but the degree of benefit varies sharply depending on each company’s exposure to fuel retailing relative to its refining throughput.
Gainers
The excise duty cut is the more immediately impactful of the two measures, and its benefit flows directly to OMCs through improved marketing margins. Since each company’s diesel and petrol marketing volumes differ as a proportion of their refining throughput, the relief is not uniform.
Nomura estimates that on the excise duty cut alone, IOCL will see an integrated GRM benefit of $12.4 per barrel, BPCL $14.8 per barrel, and HPCL $20.4 per barrel. The windfall tax adds further, though unevenly — IOCL adds just $0.5 per barrel given only 1% of its diesel is sourced from standalone third-party refineries, while HPCL adds $11.7 per barrel as approximately 32% of its diesel retail throughput is sourced from such refineries.
In total, said Nomura in its note, “we estimate a net impact (from both excise duty cut and windfall tax) on integrated margin of USD12.9/bbl, USD18.1/bbl, USD32.1/bbl for IOCL, BPCL, HPCL, respectively.” Nomura maintains Buy ratings on all three.
However, the brokerage is careful to note that even with this combined relief, marketing margins remain negative. Post the excise duty cuts, marketing margins on diesel and petrol stand at negative $68 per barrel and negative $57 per barrel respectively for all three OMCs, given the core GRM of $46 per barrel is overwhelmed by the depth of the losses at the marketing level. IOCL’s integrated margin is estimated at negative $3 per barrel — close to breakeven — while HPCL remains deeply in the red at negative $35 per barrel even after the relief.
| Company | Core GRM (USD/bbl) | Excise Duty Benefit (USD/bbl) | Windfall Tax Benefit (USD/bbl) | Total Net Impact (USD/bbl) |
|---|---|---|---|---|
| IOCL | 46 | 12.4 | 0.5 | 12.9 |
| BPCL | 46 | 14.8 | 3.3 | 18.1 |
| HPCL | 46 | 20.4 | 11.7 | 32.1 |
Reliance Ahead of Pre-War Levels
For Reliance Industries, the picture is more nuanced. Nomura notes that the windfall tax is expected to be not applicable on Reliance’s dedicated export refinery in its Special Economic Zone — the same exemption that applied in 2022. However, its domestic refinery, which produces diesel and ATF sold to OMCs, will be subject to the windfall tax on those volumes. “We expect Reliance to sell diesel and ATF produced in the domestic refinery to be transferred to OMCs at prices adjusted for the windfall tax,” Nomura said in its report.
The overall impact on Reliance’s gross refining margin across its total 1.36 million barrels per day of refining capacity is estimated at negative $8.7 per barrel. That sounds significant, but Nomura tempers it with an important observation — “the realized GRM for the refinery may be significantly higher than the normal pre-war run rate of USD10-12/bbl” due to the sharp surge in diesel and ATF product cracks globally. Nomura maintains its Buy on Reliance.
Oil India Faces a Double Blow
The sharpest pain falls on Oil India, and it comes through an indirect channel. Oil India holds approximately 70% of Numaligarh Refinery Limited, which accounts for roughly 35% of Nomura’s valuation of the upstream company. NRL faces a uniquely harsh outcome because Northeast refineries are permitted to retain 50% of central excise duties on petrol and diesel to compensate for their locational disadvantage — meaning the excise duty cut directly reduces that retention benefit.
Nomura estimates the excise duty cut alone knocks $7.7 per barrel off NRL’s GRM. The windfall tax on diesel and ATF export sales adds a further $24.5 per barrel of negative impact. The combined blow, said Nomura, is “approximately USD32.5/bbl on NRL.” At current product cracks, the brokerage estimates NRL’s core GRM at approximately $59.2 per barrel — which would compress to $26.7 per barrel after the full combined impact of both measures. Nomura maintains a Neutral rating on Oil India.