Singapore:  Ratings agency Moody's on Friday said the decline in Indian Oil Corporation's (IOC) gross refining margins was "more pronounced than expected" in June quarter and expects the margins to be capped at USD 4 a barrel for the full year ending March 2013.

State-owned IOC on Thursday reported the biggest quarterly net loss by a listed company in India at Rs 22,451 crore.

"The decline in IOC's gross refining margins was more pronounced than expected. We now believe that the company's margins will not improve beyond USD 4 a barrel for the full fiscal year ending in March 2013,"  Vikas Halan, Vice- President and lead analyst for IOC with Moody's Investors Service, said.

Gross refining margins (GRM) is the difference between total value of petroleum products and price of crude.

The loss reported in April-June quarter is three times IOC's previous largest loss of Rs 7,485 crore registered in second quarter of 2011-12 fiscal.

"The losses (in April-June) were primarily because we did not get Rs 22,451 crore in government subsidy," IOC Chairman R S Butola had said on Friday.

Halan said the delay in the reimbursement of the fuel subsidy is in line with past practices, adding that IOC usually receives its fuel subsidies from the Indian government only in the second half of the fiscal year.

"The situation tends to result in IOC reporting weak first quarter results," he added.
IOC's fuel subsidy for the first quarter ending June amounted to Rs 25,500 crore.

The results for the quarter were also affected by foreign exchange losses, with the rupee depreciating nearly 10 percent during the quarter, the ratings agency said.

IOC relied heavily on imported crude oil and has sizeable foreign currency borrowings, which accentuated the impact of the currency depreciation, it added.

Assuming a full reimbursement of the fuel subsidy and excluding the impact of foreign exchange and valuation losses, the company's EBITDA (earnings before interest, taxes, depreciation, and amortisation) for the quarter would be Rs 5,400 crore, Moody's said.

This results in an EBITDA margin of 5.6 percent, which is in line with IOC's EBITDA margin for the full fiscal year ending in March, 2012.

"We expect the government to make a full reimbursement of the fuel subsidy to the company by the end of the fiscal year, which would allow IOC to maintain an EBITDA margin of around 4-5 percent for the full fiscal year ending March, 2013," he said.


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