Improved prices to boost expansion
Indian oil and gas companies are likely use their improved cash flows from market-linked fuel prices to expand their asset base and enhance operational quality.
That’s according to report, titled “Can India’s Oil And Gas Companies Make The Most Of Their Crude Gains?,” that S&P Global Ratings published 20 March 2017.
“The combination of reform-driven improvements in financial health, lower crude oil prices, and forecasts of mid-single-digit demand growth for petroleum products puts Indian oil companies in a sweet spot to invest in growth,” said #S&P Global Ratings credit analyst Vishal Kulkarni.
“We expect the fuel-price reforms in India since late 2014 to continue and enhance business and financial prospects for the oil and gas companies.
Making fuel prices market-linked has improved oil marketing companies’ profitability, bolstered cash flows, and lowered their debt.”
S&P Global Ratings expects Indian oil marketing companies (OMCs) to step up investments in upgrading their existing refineries to meet cleaner fuel standards, improve yields, and create flexible refinery configurations in product pipeline and gas infrastructure capacities.
They will also need additional investments to maintain their dominant market share amid rising competition from private sector companies.
The planned combined capital expenditure (capex) by Indian OMCs over the next five years is Rs.3.2 trillion or US$48 billion, a huge jump from the Rs.1.6 trillion they invested over the past five years.
While we don’t expect the OMCs to reset their capex to higher levels immediately, their leverage could worsen if they were to elevate their capex plus acquisitions to US$10 billion (about Rs.650 billion) a year without commensurate contribution to EBITDA.
The report assesses nine oil and gas companies in India.
S&P Global Ratings believes the credit profiles of the companies could invariably attain investment-grade levels on their own or after considering government support and intervention due to their relationship with the government and the role they play. fii-news.com