Moody's Affirms Indian Oil's Baa3 Rating, Outlook Stable
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Moody’s Ratings has reaffirmed the Baa3 issuer rating of Indian Oil Corporation Ltd (IOCL) and has upgraded its Baseline Credit Assessment (BCA). The outlook for the company continues to be stable.

What Happened: The announcement was made public by Moody’s Ratings on Thursday. IOCL’s BCA was elevated from ba1 to baa3. Sweta Patodia, a Moody’s Ratings assistant vice president and analyst, stated, “The upgrade of IOCL’s BCA reflects our expectation that the company’s credit metrics will remain strong over the next 2-3 years despite a moderation in earnings and high capital spending. IOCL’s strong balance sheet, combined with its status as India’s largest refining and marketing company, supports a baa3 BCA.”

The affirmation of IOCL’s Baa3 issuer rating mirrors Moody’s anticipation of high support from the Government of India, considering IOCL’s strategic significance in guaranteeing the nation’s energy security. Nevertheless, this assumption does not lead to any rating uplift as IOCL’s BCA is at par with the sovereign rating.

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Moody’s projects IOCL’s annual EBITDA to hover around ₹50,000 crore -₹54,000 crore ($6.3 billion – $6.5 billion) for the forthcoming two years. Even though a moderation in earnings from the exceptionally high level of $9.8 billion (around ₹81,300 crore) for the fiscal year ended 31 March 2024 (FY23-24) is expected, it will still remain robust and higher than the company’s average EBITDA of $4.8 billion (around ₹39,800 crore) between FY17-18 and FY22-23.

IOCL’s capital expenditure will stay elevated at approximately $4.5 billion (around ₹37,300 crore) over the next two to three years. This will limit free cash flow generation and lead to incremental borrowings. Despite a rise in leverage, the company’s credit metrics will stay suitably positioned for its baa3 BCA.

The stable outlook on IOCL’s rating mirrors the stable outlook on the Government of India and the anticipation that the company will persist in generating strong earnings and cash flows.

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