BBB- and Holding: Indian Oil Passes Fitch’s Stress Test

Fitch Ratings has reaffirmed Indian Oil Corporation’s (IOC) long-term foreign-currency issuer default rating at ‘BBB-’ with a stable outlook, aligning it with India’s sovereign rating. The agency also maintained IOC’s senior unsecured rating at the same level, citing strong government ownership and a high likelihood of state support.

 

The rating reflects IOC’s critical role in India’s energy security. The government directly owns 51.5% of the company and appoints key leadership, reinforcing its strategic importance. Fitch noted that IOC’s default could disrupt fuel supply, impact economic activity, and trigger broader financial contagion across state-owned enterprises.

 

IOC’s standalone credit profile remains at ‘bb+’, supported by its dominant market share in refining and fuel retailing, integrated petrochemical operations, and above-average refining complexity. However, the company faces pressure from high capital expenditure—projected at ₹340 billion in FY25 and ₹375 billion annually thereafter—as it expands refining and petrochemical capacity and invests in energy transition projects.

 

Fitch expects IOC’s EBITDA to moderate from FY24 highs due to softer refining margins and weaker product cracks, especially amid subdued Chinese demand. Still, marketing margins are forecast to remain steady, helped by lower Brent crude prices.

 

Despite negative free cash flow in the near term, IOC’s access to funding remains strong, backed by its sovereign links and robust operating profile. The stable outlook reflects confidence in IOC’s ability to manage leverage and maintain its strategic role in India’s energy landscape.

 

Sources: Fitch Ratings, LiveMint, Fortune India