Moody's Investors Service said IOC's October-December results were better-than-expected because of its higher gross refining margins of USD 6.15 per barrel versus USD 5.15 a barrel in Q2 and USD 4.31 per barrel in Q3, 2011.
"However, the improvement in IOC's margins is somewhat tempered by the increase in its total borrowings, which have reached to a record high level owing to a delay in the reimbursement of under recoveries (revenue loss on fuel sales) by the government," it said.
Vikas Halan, Moody's Vice President and Senior Analyst, said the improvement in IOC's gross refining margins in Q3 is from the higher regional refining margins and from gains on inventory valuations.
"Consequently, IOC recorded its best quarterly results this fiscal year, posting stronger refining margins, refinery throughput, pipeline throughput, total sales and normalised EBITDA when compared with its Q1 and Q2 results and also versus its Q3 results last year," adds Halan, who is also Moody's Lead Analyst for IOC.
In addition, IOC's refinery throughput of 14.2 million tonnes in Q3 was also higher than in Q1 (13.6 million tonnes) and Q2 (13.1 million tonnes) and comparable with that of Q3 2011 (14.2 million tonnes).
IOC's normalised EBITDA (excluding the effects of under- recoveries and foreign exchange losses) for Q3, at Rs 7,200 crore was higher than in Q1 (Rs 1300 crore) and Q2 (Rs 6,300 crore) and also better than the Rs 6,500 crore in Q3 last year.
"The company's debt is at a record high, owing to its high net under-recoveries. The government has already announced that it would reimburse a portion of IOC's under-recoveries for the first nine months of the fiscal year.
We expect the government to announce a full reimbursement of under recoveries for the fiscal year by May 2013," says Halan.
Out of IOC's total under recoveries of Rs 67,100 crore for the nine months ending December 2012, the government has promised to reimburse Rs 29,500 crore and has asked upstream oil companies to provide IOC with a discount of Rs 24,300 crore, leaving the company with a total net under-recovery of Rs 13,300 crore.
The net under-recoveries and any delay in the reimbursement by the government is funded with short term borrowings, worsening IOC's debt position. As a result, the company's borrowings at end-2012 increased to Rs 94,900 crore as against Rs 75,400 crore as of March 2012.
Subsequent disbursements by the government will lower the borrowings but it will still be meaningfully higher than the March 2012 level, Moody's said.