Fuel Price Cut May Dent Oil Companies’ Ebitda By Rs 6,500 Crore: Moody’s
While consumers get cheaper petrol and diesel, OMCs are set to face the brunt.
The recent cut in petrol and diesel prices by Rs 2.50 by the central government is estimated to reduce the combined earnings before interest, tax, depreciation and amortisation margins of Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. by Rs 6,500 crore in the ongoing financial year, rating agency Moody’s said on Monday.
The government lowered excise duties by Rs 1.50 a litre and asked the country’s oil marketers to absorb the remaining Re 1 a litre ($2.1 per barrel) price cut.
“Despite the negative earnings effect of the government’s decision, we continue to expect the three oil marketing companies to report higher Ebitda in FY19 versus FY18, given higher sales volume, stable refining margins and the depreciating Indian rupee,” the report said.
Retail selling prices of petrol and diesel have reached a record high in India because of higher crude and a weaker rupee.
The new fuel prices took effect on Oct. 5.
The government’s decision to reduce fuel prices is “credit negative” for the three rated oil companies because they can’t fully pass on the higher crude oil prices to consumers and their earnings will be negatively affected, Moody’s said.