After growing at a robust 7.8 per cent in first quarter, India’s fuel consumption growth is likely to moderate at around 5-6 per cent in the current fiscal, Fitch Ratings said today.
“Fitch Ratings expects consumption growth for petroleum products to remain strong over the medium term,” it said in a report.
Consumption increased by 7.8 per cent in the first quarter of the current fiscal as compared with 10.9 per cent in FY2015-16.
“We expect growth to moderate to around 5-6 per cent in FY17 and thereafter,” it said. “We also expect continued strong gasoline (petrol) consumption growth of around 9-10 per cent over the medium term, supported by robust passenger- vehicle sales amid low crude-oil prices,” the report said.
Fitch expected that an improvement in India’s GDP growth is likely to boost demand for diesel.
It said higher refining capacity will boost refining volume and meet rising demand for refined products in the next 12-18 months, mainly driven by the 2016 expansion of three state-owned oil marketing companies — Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL).
“This should reverse the fall in exports by FY2016-17,” it said, adding exports fell by 5.3 per cent in 2015-16 and by 5.9 per cent in the previous year.
“Fitch believes gross refining margins (GRM) of all Indian oil refining companies will moderate in FY2016-17 from the strong levels achieved in 2015-16.
“However, Fitch expects GRMs to remain stronger than the historical average, which together with higher volumes is likely to support strong operating cash flow in FY2016-17,” it said.
There is unlikely to be any under-recoveries –- the difference between market prices and state-controlled selling prices –- as long as crude prices do not rally significantly from current levels, Fitch said adding the net share of under-recoveries for the oil marketing companies (OMCs) was nil in 2015-16, reflecting low oil prices and price deregulation of diesel.
Fitch expected high capex for all state-owned OMCs over the medium term due to their plans to upgrade and expand refining capacity.
The OMCs aim to improve refining complexity and meet new fuel standards. IOC and BPCL also plan to acquire upstream assets in September 2016.
“Fitch expects the credit profiles of Indian downstream companies to remain stable, despite large capex, supported by strong volume growth and relatively robust refining margins.
“The OMCs’ financial profiles are likely to weaken from FY2015-16 levels, but Fitch expects them to remain in line with their standalone credit profiles,” the report added.