Moody’s Investors Service has kept the outlooks on the ratings for three-oil refining and marketing companies — Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Ltd. (HPCL) — stable.
“The rating affirmation reflects our views that the operating performance of the state-owned refining and marketing companies will continue to improve as lower crude oil prices will reduce marketing losses and moderate working capital requirements,” said Sweta Patodia, a Moody’s Assistant Vice President and Analyst. Patodia also said the rating outlook for these companies incorporates Moody’s expectations that the government will continue to remain supportive and compensate the oil marketing companies for their past losses.
“The stable outlook reflects our view that the credit metrics of the state-owned refining and marketing companies will normalize and be within our rating thresholds by March 2024,” added Patodia.
Explaining the rationale behind the rating outlook, Moody’s said that Brent crude oil prices have fallen 17 per cent to average around USD 85 per barrel since October 2022, compared with an average price of USD 105 for the six months ended 30 September 2022 (April-September).
Also, it said the profitability of the oil marketing companies (OMCs) has increased as retail selling prices of petroleum products have “remain unchanged” during the period.
“Increased purchase of Russian crude oil- which is trading at a discount to Brent crude – has also benefitted the Indian refiners. Before the conflict, Russian crude accounted for less than 2 per cent of the total crude oil consumption for the Indian refiners, but this has since increased to around 15-20 per cent,” it said, adding that the trend is likely to continue over the next 12-18 months and benefit the Indian refiners.
Further, Moody’s noted all three companies — IOCL, BPCL, and HPCL — maintain a low cash balance relative to their short-term borrowings, resulting in a weak liquidity position.
The companies’ existing cash balances, along with their expected cash flow from operations, are expected to remain insufficient to cover their capital spending, dividend payments, and debt maturing over the next 12 months, Moody’s said.