Fitch Ratings on Monday said it has downgraded ratings of Vedanta Group firm Cairn India Holdings Ltd's rating as a drop in oil prices will hurt earnings of the company.
Fitch downgraded the Long-Term Issuer Default Rating (IDR) of Cairn India Holdings Limited (CIHL) to 'B+' from 'BB-'. The outlook is stable.
"The downgrade follows a revision of our forecast for weaker economic growth stemming from the coronavirus pandemic, which is likely to pressure commodities," it said in a statement.
It revised down its price assumptions for zinc, aluminium and oil and gas, which together contribute about 90 per cent of Vedanta Resources Ltd's (VRL), previously known as Vedanta Resources PLC) pre-tax profits.
VRL is the parent of Vedanta Ltd (VLTD), India's largest private upstream oil and gas producer, which fully owns CIHL.
The stable outlook reflects the expectation that VLTD's credit profile should remain steady.
Fitch expected the EBITDA contribution from oil and gas business to drop by about 45 per cent in FY21 and 20 per cent in FY22 due to falling oil prices and volume growth. "We expect the lower oil prices to be partly offset by decreased operating expenses, as the cost of some raw materials is linked to the oil price."
VRL, it said, has the ability to defer capex for some of its oil and gas and other mineral projects to mitigate a drop in cash flow from the low-price environment. "We do not expect the company to proceed with certain big-ticket oil and gas projects till the trajectory of oil prices reverses."
Fitch said it expects VLTD's earnings to be weaker than previous expectations. "This reflects a cut of 39 per cent and 21 per cent in our crude-oil price assumptions, a cut of 11 per cent and 10 per cent in our aluminium LME (London Metal Exchange) price assumptions and a cut of 15 per cent and 7 per cent in our Zinc LME price assumptions over FY21 and FY22, respectively."