Ratings agency India Ratings and Research (Ind-Ra) has said profitability of upstream oil producers is expected to pick up in next financial year (FY22), led by rising oil and gas prices along with higher production. The agency maintained a 'Stable' rating outlook for upstream oil companies and oil marketing companies for FY22, driven by their strategic importance to the Centre, and for city gas distribution entities due to their growth prospects.
Further, Ind-Ra stated ‘Although upstream companies have large capex plans and they continue to pay high dividends, it expects their credit metrics to remain strong in FY22 led by their scale and nature of operations, and strong liquidity, backed by the availability of liquid investments, sufficient banking lines and access to capital markets.’ It also said higher domestic gas price could impact the margins of CGD players marginally, though they would continue to benefit from their competitive position with respect to other fuels.
Besides, it said bringing natural gas under goods and services tax could boost consumption gradually. While it 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 would continue to provide cash flow stability. Petrochemical spreads, which had hit rock bottom in FY20, gained momentum over 9MFY21. It expects them to remain at higher than FY20 levels, despite a sharp pick-up in feedstock prices especially naphtha.