BPCL to incur marketing losses; prolonged State interference in fuel prices negative: Fitch

BPCL is likely to incur gross marketing losses in the current fiscal as it is unable to pass costs to consumers, Fitch Ratings said

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BPCL (Bharat Petroleum Corporation Ltd)

New Delhi: State-owned Bharat Petroleum Corporation Ltd (BPCL) is likely to incur gross marketing losses in the current fiscal as it is unable to pass costs to consumers, Fitch Ratings said Monday, while asserting that prolonged state interference in auto-fuel retail prices could be negative for ratings of BPCL. The rating agency affirmed ‘BBB-‘ rating on BPCL with stable outlook. “Fitch expects BPCL to generate gross marketing losses in FY23, as the Indian oil marketing companies (OMCs) bear the largest burden of surging crude oil prices, with only limited increases being passed on to consumers despite cuts in taxes on retail sales.

“We believe near-term prices will remain a function of the government’s efforts to balance OMCs’ financial health with inflationary and fiscal pressures,” it said.

BPCL marketing segment to turn profitable from FY24: Fitch

The marketing segment, however, should turn profitable from FY24 (April 2023 to March 2024) as crude oil prices fall.

“We expect marketing margins to remain aligned with crude oil prices over the long term,” Fitch said.

The government previously allowed OMCs to recoup losses from the temporary suspension of daily price resets in subsequent periods.

Prolonged state interference in auto-fuel retail prices negative

However, prolonged state interference in auto-fuel retail prices and marketing losses could be negative for BPCL’s rating, Fitch said.

It expected BPCL’s debt to increase in FY23 (April 2022 to March 2023) on EBITDA losses.

“However, falling crude oil prices and the resultant reversal in marketing losses would improve leverage to levels commensurate with the credit profile from FY25,” Fitch said, adding, this deleveraging is subject to the risk of a prolonged period of high crude oil prices squeezing marketing margins.

The rating agency said reports suggest OMCs are getting government support in FY23 to partly cover under-recoveries from inadequate pass-through of imported LPG prices since second half of FY22, and the re-introduction of the government subsidies on LPG cylinders since May 2022.

“Our scenario analysis suggests Rs 5,000 crore of additional cash received in FY23 could improve BPCL’s expected leverage,” it said.

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