Fitch:Indian Oil's Investment Plans Will Not Affect Credit Profile
IOC announced on 15 September that capex would be INR1,700bn-1,800bn over the next six years, including around INR150bn in the financial year ending 31 March 2017 (FY17) and around INR250bn each in FY18 and FY19. Fitch has already factored in most of the capex over the next three years, and we see no significant change to our current expectations as a result of this announcement. We continue to expect IOC's free cash flow to remain negative over the medium term, due to the high capex.
However, we still expect IOC's financial profile to remain stable due to strong volume growth and relatively robust refining margins. We consequently expect IOC's credit metrics to weaken marginally; with net leverage (net adjusted debt/operating EBITDA) of around 3x (FY16: 2.3x), but to remain within levels commensurate with its standalone profile over the medium term.
Fitch has not factored in IOC's investment in the proposed refinery project in coastal Maharashtra. This project is planned along with the other state-owned oil-marketing companies - Bharat Petroleum Corporation Limited (BBB-/ Stable) and Hindustan Petroleum Corporation Limited (BBB-/ Stable). We anticipate no major investments associated with this project in the medium term, given the early stages of the proposed project. Fitch will take into account IOC's investment share in the proposed project once there is more clarity and certainty on the time and quantum of the investments.