Moody’s Buyers Service on Wednesday mentioned earnings for state-owned oil companies IOC, BPCL and HPCL will develop over the subsequent 12-18 months as a gradual easing of pandemic restrictions drives a rebound in financial exercise and gasoline demand.
Whereas earnings stability of selling operations will assist to offset low refining margins, rising gasoline demand will in flip enhance refinery throughput.
The mix of higher demand and bettering gasoline cracks may even help an enhancement in Asian refining margins from present ranges, it mentioned.
Demand for petroleum merchandise in India declined considerably in April and Might 2020 following a nationwide lockdown to regulate the unfold of coronavirus. This led to a drop in capacity utilization for many refiners within the fiscal 12 months that ended on March 31 (FY21).
“Nonetheless, the effect on demand for petroleum merchandise following the second wave has been much more muted because the lockdowns had been extra-regional in nature,” Moody’s mentioned.
Rebound in gasoline demand and gradual restoration in refining margins will drive earnings improvement.
“Earnings for the three rated refining and advertising and marketing corporations in India – Indian Oil Company (IOC), Bharat Petroleum Company Ltd (BPCL) and Hindustan Petroleum Company Ltd (HPCL) will develop over the subsequent 12-18 months as a gradual easing of pandemic restrictions drives a rebound in financial exercise and gasoline demand,” it mentioned.
Stating that earnings stability of selling operations will assist to offset low refining margins, the score company mentioned this primarily due to the oligopolistic construction of the gasoline retailing business in India the place IOC, BPCL and HPCL collectively management 90 percent of the gasoline retailing community.
At the identical time, all three corporations are finally owned by the federal government, which ensures secure business surroundings with no extreme competitors.
“Steady earnings from the advertising and marketing operations have helped to offset the refinery section’s weak efficiency over the past 12-18 months, such that the effect on Indian refining corporations’ total earnings has been restricted.
“The advertising and marketing enterprise will stay a considerable earnings contributor for the Indian corporations due to their large-scale gasoline retailing community and entrenched market positions,” it mentioned.
Moody’s mentioned capital spending by the three refiners will stay excessive on robust demand for petroleum merchandise and authorities’ efforts to spice up funding spending to help finance development.
In the meantime, dividends will stay much like historic ranges, according to Division of Funding and Public Asset Administration (DIPAM) pointers.
“Indian corporations have increased profitability whereas their scale and credit score metrics are similar to most regional friends.
“Giant-scale advertising and marketing and midstream operations present earnings diversification, which mitigates the cyclicality of the refining enterprise and ends in increased profitability for the Indian refining and advertising and marketing corporations,” it mentioned.