Petroleum Export Duty Slashed — Five Refiners Running at Record Capacity Stand to Gain

Petroleum Export Duty Slashed — Five Refiners Running at Record Capacity Stand to Gain

The government has slashed the Special Additional Excise Duty (SAED) and Road Infrastructure Cess (RIC) on petroleum product exports, effective June 1. These levies — first imposed in July 2022 on exports of High Speed Diesel (HSD), Aviation Turbine Fuel (ATF), and Motor Spirit (MS) — have been a direct drag on refiner margins for nearly four years. Their reduction comes at a critical time: Indian refiners are running at record utilization levels but earning some of the thinnest refining margins in recent memory.

Why this matters now

India's refining capacity has grown from 215 MMTPA to 257 MMTPA over the past decade, per MRPL's FY25 annual report. With domestic demand well below this capacity, refiners routinely export surplus production — Indian Oil Corporation alone exports over 1.3 million metric tonnes of petroleum products per quarter.

The problem: Gross Refining Margins (GRMs) have collapsed. MRPL's GRM fell from US$10.36 per barrel in FY24 to just US$4.45 per barrel in FY25 — a 57% drop, per their annual report. By Q1 FY26, it had deteriorated further to $3.88/bbl, per their earnings call. When your margin per barrel shrinks this dramatically, even a modest export duty reduction goes straight to the bottom line.

Who benefits most

Indian Oil Corporation (IOC)

India's largest refiner processed 75.5 MMT in FY26 at 107.4% capacity utilization, per their Q4 FY26 investor presentation. Their Q4 alone saw 19.7 MMT throughput at a remarkable 113.9% utilization. IOC exports approximately 1.33 MMT of petroleum products per quarter — that is surplus product where the export duty directly erodes margin. With a Gujarat refinery expansion from 13.7 to 18 MMTPA underway (expected August 2026), export volumes are only going to grow.

Mangalore Refinery & Petrochemicals (MRPL)

MRPL processed 18.04 million MT of crude in FY25 — its highest ever — making it the single largest PSU refinery at a single location, per their FY25 annual report. Production milestones include 66.8 lakh MT of HSD, 27.2 lakh MT of ATF, and 20.1 lakh MT of MS. Yet despite record volumes, the GRM compression to $4.45/bbl meant profit after tax collapsed to just Rs 51 crore (from Rs 3,596 crore the year before). MRPL already books Rs 112 crore in export incentives annually — the duty cut amplifies this tailwind precisely when margins are thinnest.

Bharat Petroleum (BPCL)

BPCL's refineries processed 10.42 MMT in Q1 FY26 (up from 10.11 MMT in Q1 FY25), per their investor presentation. The company operates three refineries — Mumbai (3.94 MMT), Kochi (4.51 MMT), and Bina (1.97 MMT) — with total FY25 throughput of 40.51 MMT. Kochi Refinery, which has a high distillate yield and direct port access, is particularly well-positioned for export gains.

Chennai Petroleum (CHENNPETRO)

With a 10.5 MMTPA capacity and plans for debottlenecking, Chennai Petroleum is running close to nameplate capacity. Management noted in their Q4 FY26 earnings call that current net GRM is near the long-term average — meaning the export duty cut provides incremental upside over an already stable base. Their coastal location also makes export logistics efficient.

Reliance Industries (O2C segment)

Reliance operates the world's largest refining complex at Jamnagar. Their Q1 FY26 results showed fuel cracks recovering with gasoline cracks supported by India demand driven by higher preference for personal mobility, and diesel cracks benefiting from supply disruptions in Africa. While Reliance's domestic marketing network absorbs more of its output than PSU peers, its scale means even a small export duty reduction on what they export represents significant absolute value.

The structural tailwind

India's refining sector maintained stable utilization rates averaging 96% in FY25, per MRPL's annual report, with several refiners exceeding 100%. The sector is adding over 50 MMTPA of additional capacity by 2028. This capacity will need export outlets — and the SAED/RIC reduction makes those exports more profitable.

Global diesel inventories remain below 5-year averages, per Reliance's market analysis. Weaker global diesel demand from Europe has been partially offset by Middle East supply disruptions and reduced Chinese exports. The combination of tight global supply and Indian capacity surplus positions domestic refiners to capture export margins — now without the duty headwind.

What retail investors should do

Focus on the refiners most exposed to export margins: MRPL (where even a $1/bbl GRM improvement on 18 MMT throughput means roughly Rs 1,300 crore in additional revenue), IOC (largest absolute export volumes), and CHENNPETRO (coastal advantage, improving utilization). Monitor upcoming quarterly results for GRM improvements — the duty cut's impact should be visible from Q1 FY27 onwards. Avoid overpaying: MRPL's dramatic profit swing from Rs 3,596 crore to Rs 51 crore shows how sensitive these businesses are to margin cycles. Buy on dips when GRMs are compressed (like now), not after they have already recovered.

Data sourced from company filings on NSE via Xaro.