Fitch affirms Indian Oil Corporation at BBB-minus with negative outlook

Fitch Ratings has affirmed Indian Oil Corporation's (IOC's) long-term foreign-currency issuer default rating at BBB-minus with a negative outlook.

The agency has also affirmed IOC's senior unsecured rating and the ratings on its outstanding senior unsecured debt at BBB-minus.

Fitch said it equates IOC's rating with that of its largest shareholder, the state of India (BBB-minus with a negative outlook), based on its government-related entities rating criteria.

"We have maintained IOC's standalone credit profile (SCP) at bb-plus as we expect net leverage to improve to a level that is in line with the SCP from the financial year ending March 2022 after deteriorating to levels well above where we would consider revising the SCP downwards in FY20-21," said Fitch.

"Our rating case incorporates a gradual recovery in refining volume and margins from Q2 FY21, stable average marketing margins and controlled capex. However, the improvement is subject to the risk of weak industry conditions persisting beyond our baseline scenario and capex or shareholder returns that are higher than we expect. These limit the SCP headroom."

Fitch said IOC's SCP benefits from its dominant market position in India, where it is the largest oil refining and marketing company, the above-average complexity of its refining assets and improving diversification.

IOC's marketing volume is expected to fall 12 per cent to 77 million tonnes in FY21 from a year earlier, and refinery throughout to also fall 12 per cent to 61.4 million tonnes.

IOC's petroleum product sales are expected to fell to around 50 per cent of normal levels in April due to the nationwide lockdown, before improving to around 85 to 90 per cent by June-end as parts of the lockdown were relaxed and demand for transportation fuels (diesel, petrol and compressed natural gas) rose.

Fitch said it expects demand to gradually improve over the remainder of FY21 and increase in FY22 to pre-coronavirus levels supported by a broader economic recovery.