ONGC's Refining, Sales To Cushion Impact Of Lower Oil Prices, Says S&P Global Ratings
The rating agency anticipates that ONGC will generate enough free cash flow to strengthen its balance sheet and support its current rating.
Oil and Natural Gas Corp. is expected to maintain resilient earnings this fiscal with increased income from refining and marketing operations sufficiently countering any decline in upstream profitability caused by recent oil price drops, according to S&P Global Ratings.
The rating agency anticipates that ONGC will generate enough free cash flow to strengthen its balance sheet and support its current rating. However, they noted that the headroom for the 'BBB+' stand-alone credit profile remains limited, especially in light of the company's recent acquisitions.
"We project ONGC's adjusted Ebitda will be broadly stable at Rs 1-1.05 lakh crore in fiscal 2026, assuming Brent oil prices of $65 per barrel (bbl) in 2025 and $70 per bbl from 2026 onward," it said in a note.
The company's funds from operations (FFO)-to-debt ratio will likely improve to more than 40% over the next 12-24 months, in line with our expectation for a 'bbb+' SACP.'
"We expect the India-based integrated oil and gas company's earnings to remain resilient in fiscal 2026 (ending March 31, 2026). Earnings at the company's refining and marketing operations will rise enough to offset a decline in upstream profitability following a recent fall in oil prices," the agency said.
Increased refining and marketing margins at ONGC's subsidiary Hindustan Petroleum Corp. are expected to bolster the profitability of the group's downstream operations. This is based on the assumption that retail fuel prices will largely remain stable despite lower feedstock costs.
S&P Global Ratings anticipates that these improved marketing margins will more than offset ongoing losses from liquefied petroleum gas (LPG) sales. Furthermore, the agency projects that LPG sales losses will decrease in fiscal 2026, following the government's approximate 10% price hike of Rs 50 per cylinder in April.
"We expect domestic gas prices to increase after India's government raised its cap on gas prices by $0.25 per metric million British thermal units (mmbtu) from April 2025. Moreover, gas from new wells will be sold at a higher price."
It anticipated about 10% of ONGC's annual gas production will come from new wells, and their pricing will be revised upward to 12% of the preceding month's India crude basket instead of 10%. This translates to about $7.8 per mmBtu under our latest oil price assumptions.
ONGC's fiscal 2025 results were slightly below expectations. "We estimate the company's FFO-to-debt ratio was slightly below 40%, compared with our expectation of 42-44%."
The weaker performance was largely due to an uptick in operating costs and higher debt following recent acquisitions.
(With PTI inputs)
