Citi warns of potential excise duty hike after Bihar polls to impact HPCL more than IOC

State-run oil refiners Hindustan Petroleum Corporation Ltd. (HPCL), Bharat Petroleum Corporation Ltd

. (BPCL) and Indian Oil Corporation Ltd. (IOC) are witnessing sustained strength in margins, driven by higher refining cracks and lower crude prices, according to brokerage firm Citi.

Citi said that in the third quarter to date (QTD), refining margins have improved as gasoline and diesel cracks are trending up by $4-5 per barrel quarter-on-quarter, while crude oil prices are down by about $4 per barrel.

However, the brokerage flagged potential fiscal slippage risks for the government, estimated in the range of ₹35,000-60,000 crore for FY26.

This, it said, could prompt the government to consider an excise duty hike on petrol and diesel after the Bihar state elections.

Every ₹1-per-litre increase in excise duty can generate around ₹17,000 crore in annual revenue for the government.

An excise duty hike, if implemented, would likely impact HPCL the most and IOC the least, the brokerage said. Shares of HPCL and BPCL have gained about 9-10% so far in the quarter.

HPCL has the highest exposure to the marketing segment, compared to IOC and BPCL.

Citi has now closed its short-term positive calls on HPCL and BPCL, which were initiated on September 29, but said its overall constructive stance on OMCs remains intact, driven by attractive valuations and healthy dividend yields.

Shares of HPCL are trading 0.98% lower on Tuesday at ₹477.30, while those of BPCL are trading 0.36% higher at ₹366.45. Shares of IOC are trading 0.030% higher at ₹169.44. Stocks have gained between 16% to 25% so far this year.