Fuel demand rebounds to drive an oil company income: Moody’s

New Delhi: Moody Investor Services on Wednesday said earnings for the Oil Oil Company IOC, BPCL and HPCL will grow for the next 12-18 months as gradual easing of pandemic restrictions encourage a rebound in economic activities and fuel demand.
While the stability of the income of marketing operations will help compensate for low purification margins, the increase in fuel demand will in turn increase refinery throughput.
A combination of better demand and increasing fuel cracks will also support an increase in Asian purification margins from the current level, he said.
Demand for petroleum products in India decreased substantially in April and May 20 after the national locking to control the spread of Coronavirus.
This led to a decrease in capacity utilization for most refiners in the fiscal year which ended on March 31 (FY21).
“However, the impact on demand for petroleum products after the second wave is far more muted when more regional locking in nature,” said Moody.
Rebound in demand for fuel and gradual recovery in the refining margin will encourage increased income.
“Income for three purification and marketing companies rated in India – Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) will grow for the next 12-18 months as a gradual pandemic easing of restrictions Encourage rebound in economic activities and fuel demand, “he said.
Said that marketing revenue stability will help compensate for low purification margins, this rating agency mainly due to the oligopolistic structure of the fuel retail industry in India where IOC, BPCL and HPCL together control 90 percent of fuel retail networks.
At the same time, the three companies are finally owned by the government, which ensures a stable industrial environment without severe competition.
“The stable income of marketing operations has helped offset the performance of the weak refinery segment for the past 12-18 months, in such a way that the impact on the overall income of Indian purification companies has been limited.” Business marketing will remain a substantial income contributor to Indian companies because of their large-scale fuel retail networks and rooted market positions, “he said.
Moody’s said capital expenditure by three distillers would remain high on strong demand for petroleum products and Government efforts to increase economic expenses to support economic growth.
Meanwhile, dividends will remain similar to historical levels, in line with the Guidelines of the Investment Department and Management of Public Assets (Depam).
“Indian companies have higher profitability while their credit and credit metrics are comparable with most regional partners.
“Large-scale marketing operations and MIDSTREAM provide diversification of profits, which mitigate the cycle of refining businesses and produce higher profitability for Indian purification and marketing companies,” he said.