Credit rating agency, Fitch Ratings is expecting $35-40 billion of investment over 5 years by India’s oil marketing firms in capacity expansion and refinery upgradation, in order to meet the new emission standards in 2020.
In its latest report, the rating agency however expressed concerns that the profitability of Indian Oil (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) in 2018-19, may get hit by the government’s move to lower retail fuel prices, before being reversed the next fiscal. As per the report, the three companies’ credit metrics are likely to weaken moderately in 2019 as a result of lower retail and refining margins and large ongoing capex.
The report further pointed that the fuel-price reduction highlights the regulatory risks for Indian OMCs as a result of rising crude oil prices and the weakening rupee, especially with the upcoming elections in 2019 and continuing margin pressure through 2019-20. The agency also said that strong GDP growth expectations in India over the next two years should support petroleum product consumption growth in a range between 4% and 5% and the focus on cleaner fuel together with strong growth plans in city gas distribution is likely to support stable consumption growth in natural gas.