LPG Under-Recoveries May Hit ₹80,000 Crore in FY27 Amid West Asia Crisis: ICRA Report

LPG under-recoveries of oil marketing companies (OMCs) are likely to surge to around Rs 80,000 crore in FY2027 if current trends persist, as supply disruptions and elevated global prices linked to the West Asia conflict continue to strain India's downstream energy sector, ICRA noted in a webinar.

"The stable pump prices for auto fuels amid elevated crude oil prices are impacting the profitability of oil marketing companies (OMCs), despite the recent reduction in excise duty," Prashant Vasisht, Senior Vice President and Co-Group Head, ICRA, said during an online meeting with the media on the West Asia crisis--impact and outlook--held on Wednesday.

He further said that ICRA estimates LPG under-recoveries at Rs 80,000 crore for the full year FY2027 if the current trend continues.

At crude prices of $120-125 per barrel and long-term average crack spreads, the marketing margins on petrol and diesel are estimated to be negative Rs 14 per litre and Rs 18 per litre, respectively, Vasisht added.

How has the Strait of Hormuz disruption increased input costs across oil, fertiliser, and CGD sectors?

With supplies of LPG disrupted from West Asia, international LPG prices have surged.

While LPG production has been increased by Indian refining companies and cargoes have been procured from the US and Australia--addressing supply-side issues to an extent--under-recoveries on the sale of domestic LPG remain high for OMCs, he added.

The rating agency noted that disruptions in the Strait of Hormuz have led to a broad-based increase in input costs across downstream industries, including oil marketing, fertilisers, chemicals, and city gas distribution (CGD).

In the fertiliser sector, rising prices of key inputs such as ammonia and sulphur have significantly increased production costs.

The pooled price of gas for urea has risen sharply to around $19 per MMBTU in April 2026 from $13 per MMBTU (Metric Million British Thermal Unit) before the crisis.

The agency expects the profitability of phosphatic and potassium (P&K) fertiliser players to moderate due to inadequate subsidy revisions, with only partial cost pass-through through retail price hikes, except for di-ammonium phosphate (DAP).

With sharp raw material price inflation in both urea and non-urea fertiliser segments, ICRA estimates the subsidy requirement for FY2027 at Rs 2.05 trillion to Rs 2.25 trillion, with an upward bias.

"We expect the Government of India to enhance the allocation towards fertiliser subsidy during FY2027 from the budgeted Rs 1.71 trillion," Vasisht added.

(With inputs from ANI)