Indian oil marketing companies’ (OMCs) EBITDA will rise in the financial year ending March 2026 (FY26) as demand growth remains steady and Brent crude oil prices fall to USD70 a barrel (bbl) in 2025 and USD65/bbl in 2026, says Fitch Ratings.
We expect the OMCs’ gross refining margins (GRM) to hover around mid-cycle levels of USD5/bbl to USD6.8/bbl and for marketing margins to remain healthy in FY26, aided by lower crude oil prices, improving demand and slower net capacity growth in the region. This is despite reduced benefits to GRMs from price differences between crude varieties.
India Oil Corporation Ltd (IOC, BBB-/Stable), Bharat Petroleum Corporation Limited (BPCL, BBB-/Stable) and Hindustan Petroleum Corporation Limited (HPCL, BBB-/Stable) reported GRMs of USD3.7/bbl to USD6.0/bbl in 9MFY25, compared to the unusually high levels of USD9.1/bbl to USD12.1/bbl in FY24.
Fitch’s Brent price assumptions reflect the impact from OPEC+’s large spare capacity, increasing global production and moderating demand growth. However, heightened volatility in crude prices given geo-political considerations, and uncertainties around how the US’s future energy and tariff policies may have an impact on energy demand and global growth pose risks to our profitability estimates.
IOC’s EBITDA net leverage will improve to around 3.3x in FY26E (FY25E: 3.8x) as its EBITDA increases, aided by healthy marketing margins and a gradual improvement in refining and petrochemical margins.
Rising profits will also support HPCL’s EBITDA net leverage improving to 4.0x in FY26E (FY25E: 5.9x), although headroom under its standalone credit profile’s sensitivities will remain low. An improvement in the asset quality of HPCL’s Vizag refinery, as well as cash flow from the new refinery and petrochemical plant at HPCL’s Rajasthan joint venture, which we expect to be commissioned in FY26, will aid deleveraging.
BPCL’s EBITDA net leverage will rise to around 2.2x (FY25E: 1.7x) despite healthy profits. The increase in leverage will be driven by higher capex for its Bina project, which aims to expand refining capacity and set up an ethylene cracker. BPCL’s leverage will increase over the medium term, given its significant capex plans, including a large greenfield refinery-cum-petrochemical project in the state of Andhra Pradesh recently approved by its board.
Cash receipts from the government to compensate the OMCs for under-recoveries on sale of liquified petroleum gas (LPG), not factored in our base case, could provide additional buffers. IOC, BPCL and HPCL had under-recoveries on LPG sales of INR143 billion, INR72 billion and INR76 billion, respectively, as of 9MFY25, and the three OMCs had received INR220 billion from the government in FY23 for LPG under-recoveries.
The Issuer Default Ratings of IOC, BPCL and HPCL are driven by their strong direct and indirect linkages with the state of India (BBB-/Stable) and high likelihood of support.
Source: Fitch Ratings