ONGC's improved earnings outlook to support deleveraging: S&P
Jul 06, 2021
Singapore, July 6 : S&P Global Ratings has said that Oil and Natural Gas Corporation's (ONGC's) improved earnings outlook for the next 12 to 18 months will support deleveraging.
S&P expects the company to benefit from favorable crude oil prices over fiscal 2022 (year ending March 31, 2022). It has revised Brent crude oil price expectations for the rest of 2021 to USD65 per barrel from USD60 per barrel earlier.
This forecast is significantly higher than about USD43 per barrel that ONGC realised in fiscal 2021. The higher crude prices along with a modest 5 to 7 per cent growth in the company's production volume should push its EBITDA up by 20 to 25 per cent to about Rs 85,000 crore during fiscal 2022.
"We estimate the company's debt-to-EBITDA ratio will strengthen to about 1.6x during this period, from about 1.9x in fiscal 2021," said S&P. "We believe ONGC will maintain prudent capital investments over fiscal 2022, largely funded with operating cash flows."
The company showed good flexibility in scaling back investments over fiscal 2021 amid challenges due to the Covid-19 pandemic. Its capital expenditure fell to about Rs 43,000 crore in fiscal 2021 from close to Rs 55,000 crore in the previous year.
While Fitch estimates ONGC will spend around Rs 45,000 crore in fiscal 2022, a prolonged second wave of Covid-19 infections in India could result in lower spending.
The cushion in ONGC's standalone credit profile assessment of bbb-plus has increased. The company's improved earnings and flexibility in capital spending should push its ratio of funds from operations to debt toward 50 per cent over the next 12 to 18 months from about 45 per cent in fiscal 2021.
Fitch said this is well above its threshold of 40 per cent for a lower standalone credit profile. The BBB-minus issuer credit rating on ONGC remains constrained by the sovereign credit rating on India, it added.
