Sinking crude oil prices have resulted in aggregate inventory losses of around Rs 16,000 crore for oil companies in the third quarter of the current fiscal, said Crisil ratings today.
It added that a substantial share of this will be borne by refiners.
Brent has fallen about 50% from its high of $115.71 per barrel on 19 June, 2014. Between the September and December, it fell by a third, and closed out the year at $55 per barrel. Prices of petroleum derivatives such as polymers and chemicals also declined by around 30%.
"This will mean inventory losses for refiners, traders and manufacturers of downstream petroleum products because their raw material purchases would have been at higher prices," said Crisil in a statement today.
Crisil's calculations are based on an analysis of about 250 Crisil-rated companies including refiners, traders, polymer processors, and bulk and specialty chemical manufacturers.
These companies have average total inventory holding of about 45 days. It typically ranges between 30 and 60 days, depending on the location of plant, processing time, and price outlook.
For oil marketing companies, the losses are partly offset by higher profit margins from retail sales of petrol and diesel after deregulation of prices. Current prices reduce both -- dependence on subsidy from the government and inventory costs for these companies. This, in turn, will mean substantially lower working capital requirements, leading to fewer short-term borrowings and ultimately lower interest cost.
"Support from the government, given it's strategic importance, higher profit margins on marketing of petroleum products, lower dependence on subsidy payments, and lesser working capital loans will sustain the credit profiles of oil refiners," said Pawan Agrawal, Chief Analytical Officer, Crisil ratings.
On the other hand, the impact of inventory losses on chemical traders and downstream processors of crude oil, polymers and chemicals will depend on their product profiles, hedging policies, extent of inventory build-up, and strength of balance sheets. These companies have begun to actively reduce inventories to minimise the pain of the sharp fall in crude oil prices. This should help ease potential pressure on credit profiles.
"We expect the impact to be higher on credit profiles of companies that have weak debt protection metrics, elevated gearing levels, and higher inventory holding," said Agrawal.
In the medium to long term, these companies will benefit from lower working capital borrowings and reduced interest costs arising from lower prices of inputs.
Source: B.S
It added that a substantial share of this will be borne by refiners.
Brent has fallen about 50% from its high of $115.71 per barrel on 19 June, 2014. Between the September and December, it fell by a third, and closed out the year at $55 per barrel. Prices of petroleum derivatives such as polymers and chemicals also declined by around 30%.
"This will mean inventory losses for refiners, traders and manufacturers of downstream petroleum products because their raw material purchases would have been at higher prices," said Crisil in a statement today.
Crisil's calculations are based on an analysis of about 250 Crisil-rated companies including refiners, traders, polymer processors, and bulk and specialty chemical manufacturers.
These companies have average total inventory holding of about 45 days. It typically ranges between 30 and 60 days, depending on the location of plant, processing time, and price outlook.
For oil marketing companies, the losses are partly offset by higher profit margins from retail sales of petrol and diesel after deregulation of prices. Current prices reduce both -- dependence on subsidy from the government and inventory costs for these companies. This, in turn, will mean substantially lower working capital requirements, leading to fewer short-term borrowings and ultimately lower interest cost.
"Support from the government, given it's strategic importance, higher profit margins on marketing of petroleum products, lower dependence on subsidy payments, and lesser working capital loans will sustain the credit profiles of oil refiners," said Pawan Agrawal, Chief Analytical Officer, Crisil ratings.
On the other hand, the impact of inventory losses on chemical traders and downstream processors of crude oil, polymers and chemicals will depend on their product profiles, hedging policies, extent of inventory build-up, and strength of balance sheets. These companies have begun to actively reduce inventories to minimise the pain of the sharp fall in crude oil prices. This should help ease potential pressure on credit profiles.
"We expect the impact to be higher on credit profiles of companies that have weak debt protection metrics, elevated gearing levels, and higher inventory holding," said Agrawal.
In the medium to long term, these companies will benefit from lower working capital borrowings and reduced interest costs arising from lower prices of inputs.
Source: B.S
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