Indian Oil Corporation outlook stable despite Iran conflict hit to FY27 earnings, says Fitch affirms BBB minus
New Delhi, June 24
Fitch Ratings has affirmed Indian Oil Corporation's Long-Term Foreign-Currency Issuer Default Rating at BBB minus with a Stable outlook, equalising it with the sovereign rating of India.
The rating agency expects IOC's EBITDA to fall 50 to 60 percent in fiscal 2027 due to the Iran conflict and higher input costs, before rebounding 20 to 30 percent in fiscal 2028 as refining margins normalise. Despite the near-term pressure, Fitch sees IOC's state backing and dominant market position keeping credit risk contained.
Fitch Ratings said the affirmation reflects "Extremely Likely" state support and equalises IOC's rating with India's sovereign rating of BBB minus with Stable outlook under its Government-Related Entities criteria.
"We equalise IOC's rating with that of its largest shareholder, the state of India, under our Government-Related Entities Rating Criteria. This reflects our 'Extremely Likely' assessment of state support," Fitch Ratings said. It added that the government directly owns 51.5 percent of IOC and appoints key board members, enabling control over the company.
The agency flagged a sharp earnings decline in fiscal 2027 due to geopolitical stress. "We forecast EBITDA will drop by 50 percent to 60 percent in FY27. This is likely to stem from higher input costs that more than offset an abnormally wide gross refining margin as well as a lower marketing profit, driven by stickier retail prices, despite a rise of 7 rupees to 7.5 rupees per litre since the Iran conflict began," Fitch Ratings said. However, it expects a recovery in fiscal 2028 as crude prices move toward mid-cycle levels and gross refining margin settles around 6 dollars per barrel.
Fitch Ratings highlighted IOC's policy role and systemic importance. "We believe IOC has a Very Strong role in preserving government policy, as it is India's largest state-owned oil refining company and transport fuel retailer. The company's default would threaten India's energy security, given its key role in importing crude oil to meet a large share of the country's energy needs," Fitch Ratings said. It also noted "Strong contagion risk," stating that IOC's default could hurt funding access and borrowing costs of other government-related entities.
On finances, Fitch Ratings expects leverage to spike temporarily but stabilise thereafter. "We forecast EBITDA net leverage will remain in the range of 2.5 times to 3.5 times from FY28, following a temporary spike in FY27," the report said. Capex will stay elevated at around 357 billion rupees in fiscal 2027 and 375 billion rupees thereafter as IOC expands refineries and petrochemical capacity to more than 13 million tonnes per annum by 2030. Fitch Ratings said free cash flow should trend toward neutral from fiscal 2028 after the refinery expansion is completed.
The Stable outlook hinges on sovereign rating and state support. Fitch Ratings said a downgrade of India's sovereign rating or a weakening of state support would trigger a downgrade, while an upgrade of the sovereign rating would lead to an upgrade for IOC, provided the assessment of state support remains unchanged.
— ANI
Reader Comments
Fitch saying "extremely likely" state support is basically admitting IOC is too big to fail. But why should taxpayers bear the burden when IOC's inefficiencies are exposed? They need to modernize refineries instead of just expanding capacity.
Classic Indian PSU story - heavy capex now, hope for recovery later. ₹357 billion expenditure is massive. Hope they don't over-leverage themselves. At least the FCF should turn positive by FY28. But with global crude volatility, nothing is guaranteed.
This is why we need more private sector competition in oil retailing. IOC's monopoly mindset shows - they raise prices when input costs rise but don't pass on benefits when crude falls. Common sense says break the monopoly!
Honestly, Fitch's analysis seems too optimistic. Iran conflict could drag on for years, not just FY27. And our fuel prices are already sky-high. IOC's EBITDA drop of 50-60% is scary. But what about the common man? Petrol at ₹100+ and diesel near ₹90 is killing household budgets.
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