India's state-run oil marketing companies (OMCs)—Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum—reported a combined adjusted net profit of ₹29,896.1 crore in Q2FY27. That's a 66.2% jump from the year-ago period and their highest in 13 quarters. Just a quarter earlier, they had collectively bled ₹17,652.7 crore. Meanwhile, Reliance Industries saw its oil-to-chemicals (O2C) segment deliver a record Ebit of ₹22,347 crore, up 77.9% year-on-year. On the surface, both camps had a blockbuster quarter. But dig a little deeper, and the stories couldn't be more different.
Crude oil prices spiked 40% year-on-year during the September quarter, driven by the West Asia crisis. You'd expect raw material costs for fuel refiners to follow suit. Surprisingly, the OMCs' combined raw material costs rose only 33.3%. Their net sales, however, jumped 39.9%. This mismatch is the first clue to understanding their margin expansion.
Here's the thing: raw material costs as a percentage of net sales improved to 84% in Q2FY27 from a staggering 97.6% in the previous quarter. A year ago, this ratio stood at 83.3%. This improvement essentially explains the entire sequential rebound in profitability. The combined operating profit surged 50.8% year-on-year to ₹54,750 crore, pushing the Ebitda margin to 10.1% of net sales—the highest in at least 13 quarters and well above the 20-quarter average of 6.5%.
A key driver behind this margin expansion was a clever bit of policy engineering.
The math is straightforward. Excise duty is a fixed amount per litre, not a percentage. When the duty was cut by ₹10 but pump prices stayed frozen, that entire amount flowed straight to the OMCs' bottom line. Their combined excise payout nearly halved to ₹27,516.4 crore from ₹54,018.8 crore a year ago—the lowest in at least 21 quarters. This sharp decline in indirect tax outgo, without any corresponding drop in retail prices, directly expanded their marketing margins.
While the excise cut provided a cushion, the real hero was the refining business. Global fuel cracks—the difference between crude oil and refined product prices—went through the roof. Transportation fuel prices internationally rose 50-78% year-on-year. Indian Oil Corporation's gross refining margin (GRM), net of the Special Additional Excise Duty (SAED), stood at $18.52 per barrel, up from $15.59 in the previous quarter. Hindustan Petroleum reported a GRM of $32.15 per barrel, nearly four times the $8.80 per barrel from a year ago.
But here's where the plot thickens. These refining gains had to offset substantial losses on the retail side. State-run OMCs sell petrol, diesel, and LPG at controlled prices. With international prices soaring and domestic rates frozen since May, they were bleeding on every litre sold. ICRA estimated marketing losses of about ₹8 per litre on petrol and ₹9 per litre on diesel in September, with LPG under-recoveries around ₹300 per cylinder. The refining profits were large enough to absorb these hits and still deliver record earnings.
LPG (liquefied petroleum gas) remains a persistent drag. Indian Oil Corporation reported outstanding LPG under-recoveries of ₹32,506 crore as of September 30, 2026. The government did step in with compensation—IOCL recognized ₹7,243 crore for the April-September period, of which roughly ₹3,620 crore likely fell in Q2. Analysts noted this support was crucial to IOCL's earnings outperformance. However, even with this aid, elevated LPG under-recoveries and foreign exchange losses continued to weigh on the company's results.
While state-run OMCs grappled with the push and pull of policy and controlled pricing, Reliance Industries played a different game. Its O2C segment, which includes refining and petrochemicals, reported revenue of ₹2.32 trillion, up 44.2% year-on-year. This growth significantly outpaced the OMCs' 28.9% gross sales increase.
It also added a Very Large Ethane Carrier (VLEC) to its fleet to source US ethane, giving it a cost edge over naphtha-based crackers. On the product side, Reliance redirected sales to high-netback markets in Africa, Latin America, the EU, and Australia. It even supplied its first-ever low-sulphur jet fuel to South Africa. Investor Presentation +1
This ability to chase the best prices globally meant Reliance could fully capture the surge in international fuel cracks. Polyester chain margins recovered to a three-year high, led by paraxylene and purified terephthalic acid (PTA). Fuel cracks were up 3 to 3.7 times year-on-year, reaching historic highs. Investor Presentation
The government's Special Additional Excise Duty (SAED), essentially a windfall tax on fuel exports, adds another layer of complexity. Introduced in March 2026 to disincentivize exports and ensure domestic supply, SAED rates are revised every fortnight. In Q2FY27, the diesel export levy ranged from ₹8.50 to ₹25.50 per litre, while ATF duties fluctuated between ₹7.50 and ₹22.
This levy hits export-heavy refiners hardest. Reliance, which reportedly exports 50-60% of its diesel and ATF, is directly in the line of fire.
State-run OMCs, with their minimal export exposure (IOCL's exports were just 5% of sales), are less directly impacted by SAED. However, their GRMs are reported net of this duty. IOCL management noted that adding back SAED would have lifted its GRM to about $36 per barrel in Q1, indicating the tax's material impact on refining profitability. Transcript
Comparing the OMCs' combined net profit of ₹29,896 crore with Reliance O2C's Ebit of ₹22,347 crore requires caution. The OMC figure is net profit (after interest, tax, and depreciation), while Reliance's is Ebit (before interest and tax). A better comparison is operating metrics. The OMCs' combined operating profit of ₹54,750 crore implies an operating margin of roughly 10.1%. Reliance O2C's Ebitda of ₹25,203 crore translates to a margin of about 10.9%. On an operating margin basis, the performance is remarkably similar.
The divergence lies in volatility and trajectory. The OMCs swung from a massive loss to record profit in a single quarter, driven largely by temporary factors like the excise cut and a dip in crude prices mid-quarter. Reliance's growth, while explosive, was built on structural advantages in sourcing and product placement that are less dependent on domestic policy whims.
The big question now is: can this last? Indian Oil Corporation has already warned that upcoming quarters could see inventory losses if crude oil prices normalize with the easing of the West Asia crisis. Analysts also caution against extrapolating one exceptional quarter, noting that refining profits are inherently cyclical.
For Reliance, management expects elevated refining margins to persist due to geopolitical disruptions and low global inventories. However, they also acknowledged that the current pace of earnings may not be repeated every quarter. The company's new energy businesses, which are expected to contribute revenue from FY28, remain the long-term bet, but near-term profits are still tied to hydrocarbon margins. Transcript
For the OMCs, the sustainability hinges on policy. If the government reverses the excise duty cut or forces retail price reductions, margins could compress quickly.
Q2FY27 was a quarter where the stars aligned for India's fuel sector. State-run OMCs benefited from a rare confluence of high refining margins, a policy-driven excise windfall, and one-time government support. Reliance Industries leveraged its operational flexibility and global reach to capture the upside from disrupted energy markets. Both delivered record numbers, but the paths they took were fundamentally different. As the West Asia situation evolves and crude prices find a new equilibrium, the sector is likely to see a return to the more familiar dynamics of policy constraints and cyclical margins. For now, though, it's the refiners who are laughing all the way to the bank.
