Synopsis:- Excise duty cuts from ₹13 to ₹3 on petrol and from ₹10 to zero on diesel improve margins. However, crude above $100–120 keeps under-recoveries high. Despite relatively stable balance sheets (0.3–1.4x debt-equity), gains remain limited, and fuel prices are unlikely to decline soon.
The government has sharply reduced the excise duty, a tax collected on fuel, on both petrol and diesel. The duty on petrol has been brought down from ₹13 per litre to just ₹3 per litre, while the duty on diesel has been cut completely to nil, from ₹10 per litre earlier. This is a significant move that directly puts three major state-owned oil companies in focus: HPCL, BPCL, and IOC.
Why does this matter for oil companies?
When excise duty falls, the cost of supplying fuel becomes cheaper for these oil marketing companies. Since petrol and diesel prices at the pump are not expected to change, companies get to keep that cost saving. This widens their profit margin on each litre sold, known as the marketing margin. More margin means more cash flowing in, which directly helps improve their financial health and strengthens their balance sheets over time.
The crude oil problem
The bigger challenge for these companies has been the rising cost of crude oil, the raw material used to make petrol and diesel. With tensions in the Middle East pushing prices as high as $120 a barrel, oil marketing companies were actually losing money on every litre they sold. This led to a wave of downgrades from brokerages across the market, who expected these stocks to perform poorly given the negative margins on both petrol and diesel.
When crude prices rise above $100 a barrel, and pump prices remain fixed, oil companies are forced to sell fuel below cost, a situation called “under-recovery.” The excise duty cut helps ease this burden, but does not fully solve it.
How strong are these companies financially?
Despite the pressure, the balance sheets of these companies are in reasonably good shape. BPCL is the strongest of the three, with a net debt-to-equity ratio of just 0.3 times as of financial year 2025 — meaning it carries very little debt relative to its own funds. IOC stands at 0.8 times, reflecting a moderate level of borrowing. HPCL carries the highest debt load among the three, at 1.4 times, making it the most financially stretched and the one most sensitive to swings in crude prices and margins.
Will consumers see cheaper fuel?
Probably not anytime soon. Former HPCL chairman MK Surana told CNBC-TV18 that even with the excise duty cut, it is very unlikely that petrol or diesel prices will be reduced at the pump. The reason is simple: these companies are already selling fuel below cost because crude oil has crossed $100 a barrel. Under-recoveries remain high, and the priority right now is plugging those losses, not passing savings on to consumers. Higher crude prices paired with fixed pump prices also continue to put pressure on cash flows and liquidity for all three companies.
The bottom line
The excise duty cut is a welcome relief for oil marketing companies. It eases cost pressure and expands marketing margins, giving their finances some breathing room. But as long as crude oil stays expensive, the fundamental problem of under-recovery does not go away. For now, the benefit stays with the companies, and consumers should not expect cheaper fuel at the pump.
Conclusion
In conclusion, the excise duty cut offers short-term relief by improving margins and easing cost pressures for oil marketing companies. However, persistently high crude prices above $100–120 per barrel continue to strain profitability and cash flows, limiting overall benefits. Until crude stabilises, financial performance will remain volatile despite policy support.
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