Synopsis : Oil India shares are under pressure after the government reinstated a higher royalty burden on onshore crude production. Brokerages Nomura and Kotak Securities warn of a significant earnings impact, with Oil India expected to be hit harder than ONGC.
Oil India has landed in the spotlight after the government reversed a key royalty relief granted just a month ago, raising concerns over profitability and future earnings.
The revised notification restores the effective royalty rate on onshore crude oil production to 16.67%, up from the 12.5% rate announced in May 2026. The change is applicable retrospectively from May 11, 2026, increasing the financial burden on upstream oil producers.
Why Oil India Is More Vulnerable
Unlike larger peer ONGC, whose production is diversified across offshore and onshore assets, Oil India derives virtually all of its crude oil production from onshore fields.
This makes the company the biggest casualty of the revised royalty structure.
According to Nomura, Oil India could see an 8–9% impact on profit before tax, significantly higher than the estimated 1–1.5% impact on ONGC.
The brokerage noted that Oil India's complete dependence on onshore production leaves it highly exposed to the increase in royalty payments.
Nomura Flags Higher Earnings Risk
Nomura believes the government’s decision reflects an effort to protect revenue collections after earlier reductions in excise duties on petroleum products.
The brokerage highlighted that while royalty incentives continue for deepwater and ultra-deepwater fields to encourage fresh investments, traditional onshore producers such as Oil India are now facing a higher burden.
The brokerage expects the revised royalty framework to weigh meaningfully on earnings over the coming quarters.
Kotak Securities Maintains ‘Sell’ Call
Kotak Securities also expressed caution on the stock.
The brokerage estimates the revised royalty regime could generate an additional ₹2,300–2,500 crore in revenue for the government while negatively impacting upstream oil producers.
For Oil India specifically, Kotak estimates:
- EBITDA impact of around 4–5%
- Earnings per share (EPS) decline of 5–6%
- Effective royalty cost rising to approximately $13 per barrel in FY27 from $10 per barrel earlier
Given these concerns, Kotak has maintained its 'Sell' rating on the stock and reduced its target price to ₹365 from ₹390, implying downside potential from current levels.
Recent Share Price Performance
The stock has witnessed significant weakness in recent sessions:
- Down 13% in the last 5 trading days
- Down 14% over the past month
- Up 4% over the last 6 months
- Down more than 10% over the past year
The latest royalty revision has added fresh pressure to investor sentiment.
Strong Q4 Results Offer Some Support
Despite the regulatory setback, Oil India delivered a strong financial performance in Q4FY26.
The company reported:
- Consolidated profit after tax of ₹2,424 crore
- 62% year-on-year growth compared to ₹1,497 crore in Q4FY25
- 6% growth in crude oil production
- Improved crude oil realisation at $77.89 per barrel versus $74.46 per barrel a year ago
For the full financial year FY26:
- Consolidated profit rose to ₹7,551 crore from ₹7,040 crore in FY25
The board also recommended a final dividend of ₹1 per share, taking the total FY26 dividend payout to ₹11.5 per share, including interim dividends.
What Investors Should Watch
Going forward, investors will closely monitor:
- Impact of higher royalty payments on profitability
- Crude oil price movements
- Government policy changes affecting upstream producers
- Future production growth and exploration activity
While Oil India continues to generate strong cash flows and remains a key player in India's energy sector, the restoration of higher royalty rates has introduced a fresh earnings headwind that brokerages believe could limit near-term upside.
Disclaimer : This article is for informational purposes only and should not be construed as investment advice. Brokerage views are subject to change, and investors should consult a SEBI-registered financial advisor before making investment decisions.
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