Worst may be behind for Indian oil marketing companies: Fitch

The worst may be over for Indian oil marketing companies after a significant debt increase in the second quarter of the current financial year 2022-23 due to weak EBITDA from marketing losses, a depreciating rupee and high working-capital needs, said Fitch Ratings, adding that it expects the marketing segment to turn profitable from 2023-24.

Retail losses from auto fuel prices that have been frozen for around six months amid elevated crude oil prices kept their profitability under pressure in the second quarter, it said in a report on Monday.

"This was driven by losses on diesel sales, while losses on petrol sales moderated, despite a fall in average crude oil prices to USD98/barrel (bbl) in 2QFY23 from USD112/bbl in 1QFY23," the report said.

Fitch expects crude oil prices to fall to an average of USD 96 per barrel in 2022-23 and believes that the oil marketing companies may not immediately cut auto fuel prices, allowing marketing margins to normalise and recoup some of the current losses.

"We expect marketing margins and overall profitability to continue improving in 2023-24 as crude oil prices fall to Fitch's assumption of USD80/bbl," it added.

To cover losses on liquified petroleum gas sales, which is a regulated product, the government recently gave a one-time grant of Rs 56 billion each to Bharat Petroleum Corporation and Hindustan Petroleum Corporation, and Rs 108 billion to the Indian Oil Corporation, according to Fitch.

"We believe the OMCs may seek government support to cover under-recoveries on diesel and petrol sales as well, although the fuels' officially deregulated nature and presence of private fuel retailers may add to the complexities of any direct support," Fitch further said.