MUMBAI: The LPG under-recovery of state-owned oil marketing companies (OMCs) saw a sharp 35% reduction –from Rs 220 a cylinder to Rs 160 in the first quarter totalling Rs 7,940 crore from the previous quarter, essentially due to the Rs 50 per cylinder price hike announced in April coupled with some moderation in the sourcing cost, says a report.
OMCs faced significantly high LPG under-recoveries to the extent of Rs 220/cylinder in FY25 to Rs 160, as the higher sourcing cost could not be passed on to consumers, Care Ratings said in a report Tuesday.
With the twin impact of an increase in retail prices by Rs 50 and a moderation in sourcing cost, the under-recoveries have come down to Rs 160 per cylinder, down 35% sequentially. While the LPG under recovery continues to build up, it reduced on a sequential basis by 35% in Q1FY26. As of June 2025, the cumulative under recovery mounted to Rs 49,210 crore.
OMCs were also compensated for LPG under-recoveries through subsidies of Rs 22,000 crore provided in FY23 as well.
OMCs still faced under-recoveries of around Rs 7,940 crore in Q1FY26, down from Rs 12,110 crore in Q4FY25, the agency said, attributing the sharp fall to the persistent differences between LPG sourcing cost and its revised retail price.
Still total LPG under-recoveries stood at around Rs 49,210 crore as of June 2025, up from Rs 41,270 crore as of March 2025, the report said.
It can be noted that to partially offset the growing burden of under-recoveries, the Cabinet had on August 08 approved a Rs 30,000 crore compensation for OMCs, to be disbursed in 12 tranches.
The Saudi contract price, an international LPG benchmark, has sharply corrected recently due to geopolitical trade tensions, rising global production, weak demand, and seasonal slowdown after winter. It dropped to $506/metric tonne in August from over $ 600/mt in March 2025.
After reducing the price by Rs 100/14.2 kg cylinder in March 2024, the price was revised upwards, on April 8, 2025, by Rs 50 per cylinder. Furthermore, a reduction in LPG sourcing cost on the back of a decline in Saudi contract price is expected to further reduce the LPG under-recoveries in the ensuing months.