Fitch Ratings has cautioned that Indian fuel retailers are facing increasing credit strain as high global oil prices persist, squeezing their margins and elevating debt levels. The rating agency highlighted that the situation could lead to rating downgrades if the pressure continues without relief.
Impact on Retailers
The three major state-owned oil marketing companies (OMCs) — Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation — are particularly vulnerable. According to Fitch, their marketing margins on petrol and diesel have turned negative since June 2024 due to the inability to fully pass on higher input costs to consumers, given government oversight on retail prices. This has eroded their profitability and increased working capital requirements, leading to higher borrowings.
Debt and Ratings
Fitch noted that the OMCs' leverage metrics have weakened, with net debt-to-EBITDA ratios expected to rise significantly in the fiscal year ending March 2025. If the current pricing environment persists, the agency may consider negative rating actions. However, strong government ownership and support provide some buffer. The OMCs have historically received compensation for under-recoveries, but the timing and extent of such support remain uncertain.
Market Dynamics
India is heavily dependent on oil imports, and global crude prices have remained elevated above $80 per barrel due to supply cuts by OPEC+ and geopolitical tensions. Domestic fuel prices have been frozen for over two years, despite rising costs, as the government aims to control inflation ahead of elections. This has led to mounting losses for OMCs, which have also seen their market share challenged by private players like Reliance Industries and Nayara Energy, who have more pricing flexibility.
Outlook
Fitch expects the credit strain to persist in the near term unless there is a sharp decline in crude prices or a revision in retail fuel pricing. The agency will monitor the OMCs' ability to manage liquidity and maintain adequate credit profiles. Any further deterioration could trigger rating downgrades, impacting their access to capital markets and raising borrowing costs.
