Petrol, diesel rates: Fuel price reduction may dent oil companies EBITDA by Rs 6,500 cr, says Moody's

Hyderabad: The recent cut in petrol and diesel prices by Rs 2.50 by the Centre is estimated to reduce the combined EBITDA margins of IOCL, HPCL and BPCL by Rs 6500 crore during current fiscal, rating agency Moody’s said on Monday. It also said on 4 October, the government reduced petrol and diesel retail selling prices by Rs 2.50 per liter, through the lowering of excise duties by Rs 1.50 per litre and asking the country’s oil marketing companies (OMCs) to absorb the remaining Rs 1 per liter ($2.1 per barrel) price cut. [caption id=“attachment_4222823” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] “We estimate that the government’s decision will reduce the combined EBITDA (earnings before interest, tax, depreciation and amortisation) of the three OMCs by INR 65 billion (Rs 6,500 crore) in fiscal 2019, which ends in March 2019, which is around 9 percent of their total EBITDA of INR 692 billion (Rs 69,200 crore in fiscal 2018). Despite the negative earnings effect of the government’s decision, we continue to expect the three OMCs to report higher EBITDA in fiscal 2019 versus fiscal 2018, 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 the increase in global crude oil prices and a depreciation in the Indian rupee. The new fuel prices took effect on 5 October. The government’s decision to reduce fuel prices is credit negative for the three rated OMCs, Indian Oil Corporation Limited, Bharat Petroleum Corporation and Hindustan petroleum Corporation because they cannot fully pass on higher crude oil prices to consumers and their earnings will be negatively affected, Moody’s said. These three OMCs account for about 95 percent of the country’s retail fuel sales.