Standalone credit profiles of India's oil marketing companies are at greater risk of downward revision due to the coronavirus-induced drop in demand and refining margins, and their continued investments, Fitch Ratings said on Monday.
However, the Issuer Default Ratings (IDRs) of Indian Oil Corporation Ltd (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), which are driven by sovereign linkages through the state's direct or indirect ownership, will remain stable.
"We expect the net leverage of the three companies to weaken over the financial year ended March 2020 (FY20) and FY21 to levels where we would consider revising their SCPs (standalone credit profile) downwards, before improving to in line with their current SCPs from FY22. The weakened metrics leave minimal headroom for the SCPs of HPCL and BPCL and limited headroom for IOC's," it said.
Fitch in a statement said the FY20 financial profiles of the three companies were likely to have been affected by large inventory losses due to the steep fall in crude oil prices in the last fortnight of March 2020 and by weakened demand during the period.
There was also a short-term disruption in the receivables cycle.
"All these will lead to a spike in FY20 gross debt, which pushed up their leverage metrics," it said.
"We expect the three companies' leverage in FY21 to remain above levels appropriate for their SCPs as they face lower demand, weak refining margins, high capex, though below earlier estimates, and continuing dividend outflows."