OC: Credit metrics improve, says Moody's

Further improvement likely as new capacity is commissioned and fuel subsidies decline

June 02, 2014 12:10 IST | India Infoline News Service
Indian Oil Corporation’s (IOC, Baa3 stable) results for the year ended March 2014 (FYE3/2014) were supported by a near full reimbursement of fuel subsidies by the Government of India (Baa3 stable) and higher refining margins.
IOC’s results for the quarter ended March 2014, however, were relatively weaker as its refining margins declined sharply to $2.2 per barrel from $4.6 per barrel in the immediately preceding quarter ended December 2013, as shown in exhibit 1.

Although IOC’s reported borrowings increased by about 3% to INR832 billion for FYE3/2014, its credit metrics also improved with debt to normalized EBITDA declining to 3.6x from 4.2x last year. In addition, the company reduced its reliance on short-term borrowings. Its short-term borrowings to total debt fell to 59% as of end-March 2014 from 70% a year ago.
Moody’s expects further improvement in credit metrics. IOC’s new refinery in Paradip, with a refining capacity by 15 million tons per annum, is expected to be commissioned later in 2014 and will improve company earnings. We also expect IOC’s total borrowings to decline over the next 12 months as the level of fuel subsidies falls. We expect the newly elected government to continue, if not speed up, efforts to deregulate fuel prices in India.
Source: Moody's Investors Service

The author is Vice President, Moody's

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