Indian OMCs, GAIL face narrower buffers from prolonged Iran shock: Fitch

Core Viewpoint - Indian oil marketing companies (OMCs) and GAIL (India) Limited may experience cash-flow pressure due to ongoing tensions in the Middle East, particularly if the Strait of Hormuz remains closed or oil prices remain high for an extended period [1] Group 1: Impact on Oil Marketing Companies (OMCs) - Bharat Petroleum Corporation Limited (BPCL) has the strongest balance-sheet buffers among rated OMCs to withstand prolonged supply disruptions or higher feedstock costs, followed by Indian Oil Corporation Limited (IOC) and Hindustan Petroleum Corporation Limited (HPCL) [2] - The government is expected to balance the financial health of OMCs with inflation management and fiscal policy, as seen during previous crude price volatility [2] Group 2: GAIL's Financial Outlook - GAIL's leverage is expected to increase due to Middle East liquefied natural gas (LNG) disruptions, but it is less exposed to prolonged supply shocks compared to rated OMCs due to lower dependence on imported feedstock and higher balance-sheet headroom [3] - If Middle East LNG is unavailable for one quarter, GAIL's EBITDA net leverage could rise to approximately 2.5x by the financial year ending March 2027, compared to an earlier estimate of 1.8x [4] - A two-quarter disruption could push GAIL's leverage closer to 3.0x due to weaker petrochemical earnings, lower LNG marketing and transmission volumes, and increased working capital needs [4] Group 3: Overall Industry Impact - For rated OMCs, EBITDA net leverage could increase by about 0.4x-0.6x in FY27 if Iran-related disruptions raise Brent crude prices to around $90 per barrel for a quarter, doubling refining margins while marketing profits fall to zero [5] - Standalone refiners like Reliance Industries may experience mixed effects from higher crude prices, benefiting initially from inventory gains and stronger product cracks, but facing potential crude shortages and refinery run cuts if supply constraints persist [6]