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Earnings from Indian state-owned oil companies IOC, BPCL and HPCL will grow
over the next 12-18 months as the gradual easing of pandemic restrictions drives a rebound in economic activity and fuel demand, Moody's Investors Service said on Wednesday.
While the profitability stability of the marketing business will help offset the impact of low refining margins, the increase in fuel demand will in turn boost refinery production
.
The combination of better demand and an improved fuel gap will also support an improvement
in refining margins in Asia from current levels, Moody's said.
India's demand for petroleum products dropped
sharply in April-May 2020 following nationwide lockdowns to control the spread of the coronavirus.
This resulted in a decline
in capacity utilization at most refineries in the fiscal year ending March 31 (FY 2020-21).
"However, because the lockdown is more regional in nature, the impact on demand for petroleum products after the second wave is much smaller," Moody's said
.
A recovery in fuel demand and a gradual recovery in refining margins will drive earnings improvement
.
"As the pandemic gradually eases, driving a rebound in economic activity and fuel demand, earnings for India's top three refining and marketing companies – Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) – will grow
over the next 12-18 months.
"
The rating agency said the profitability stability of the marketing business would help offset low refining margins, mainly due to the oligopoly structure of India's fuel retail industry, with IOC, BPCL and HPCL collectively controlling 90 percent of the fuel retail network
.
At the same time, all three companies are ultimately owned by the government, which guarantees a stable industry environment without any fierce competition
.
"Solid earnings from the marketing business helped offset the weak performance of the refining segment over the past 12-18 months and therefore had a limited
impact on the overall earnings of Indian refiners.
Moody's said capital spending at the three major refineries would remain high due to strong demand for petroleum products and government efforts to increase investment spending to support economic growth
.
Earnings from Indian state-owned oil companies IOC, BPCL and HPCL will grow
over the next 12-18 months as the gradual easing of pandemic restrictions drives a rebound in economic activity and fuel demand, Moody's Investors Service said on Wednesday.
While the profitability stability of the marketing business will help offset the impact of low refining margins, the increase in fuel demand will in turn boost refinery production
.
The combination of better demand and an improved fuel gap will also support an improvement
in refining margins in Asia from current levels, Moody's said.
India's demand for petroleum products dropped
sharply in April-May 2020 following nationwide lockdowns to control the spread of the coronavirus.
This resulted in a decline
in capacity utilization at most refineries in the fiscal year ending March 31 (FY 2020-21).
"However, because the lockdown is more regional in nature, the impact on demand for petroleum products after the second wave is much smaller," Moody's said
.
A recovery in fuel demand and a gradual recovery in refining margins will drive earnings improvement
.
"As the pandemic gradually eases, driving a rebound in economic activity and fuel demand, earnings for India's top three refining and marketing companies – Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) – will grow
over the next 12-18 months.
"
The rating agency said the profitability stability of the marketing business would help offset low refining margins, mainly due to the oligopoly structure of India's fuel retail industry, with IOC, BPCL and HPCL collectively controlling 90 percent of the fuel retail network
.
At the same time, all three companies are ultimately owned by the government, which guarantees a stable industry environment without any fierce competition
.
"Solid earnings from the marketing business helped offset the weak performance of the refining segment over the past 12-18 months and therefore had a limited
impact on the overall earnings of Indian refiners.
Moody's said capital spending at the three major refineries would remain high due to strong demand for petroleum products and government efforts to increase investment spending to support economic growth
.
