Mumbai: India Ratings and Research (Ind-Ra) maintained a stable outlook for oil and gas sector during FY22, driven by a strong demand revival for petroleum products and continued sound liquidity.
The agency has also maintained a stable rating outlook for upstream oil companies and oil marketing companies, driven by their strategic importance to the government and for city gas distribution (CGD) entities due to their growth prospects.
Ind-Ra expects a pickup in profitability for upstream producers led by higher crude prices and gas pricing reforms along with higher production.
Although upstream companies have large capex plans and they continue to pay high dividends, the agency expects their credit metrics to remain strong in FY22 led by their scale and nature of operations and strong liquidity backed by availability of liquid investments, sufficient banking lines and access to capital markets.
Higher domestic gas price can impact the margins of CGD players marginally though they will continue to benefit from their competitive position with respect to other fuels.
Besides, said Ind-Ra, bringing natural gas under goods and services tax can boost the consumption gradually.
While the agency expects only a gradual pickup in gross refining margins in FY22, led by a muted improvement in crack spreads of key products, the marketing and pipeline segments will continue to provide cash flow stability.
Petrochemical spreads which had hit rock bottom in FY20 gained momentum over 9M FY21. Ind-Ra expects them to remain at higher than FY20 levels despite a sharp pick-up in feedstock prices, especially naphtha.
A lower subsidy burden and possible asset monetisation can help in meeting the high capex requirement of OMCs partly, though dividend outflows are expected to remain high.
Policy-level changes during the stake sale of Bharat Petroleum Corporation Ltd or changes in the subsidy-sharing mechanism will continue to be key monitorables for assessing the linkages of oil marketing companies with the government.