ONGC's improved earnings outlook for 12-18 months to support deleveraging

 The rating agency has revised Brent crude oil price expectations for the rest of 2021 to $65 per barrel from $60 per barrel earlier

Rating agency Standard and Poor's on Tuesday said state-owned Oil and Natural Gas Corporation Ltd's (ONGC) improved earnings outlook for the next 12-18 months will support deleveraging.

"We expect the India-based company to benefit from favorable crude oil prices over FY22 (year ending March 31, 2022)," S&P said in a statement.

"It is rated at "BBB-/Stable". Our 'BBB-' issuer credit rating on ONGC remains constrained by the sovereign credit rating on India (BBB-/Stable/A-3)," the agency added.

The rating agency has revised Brent crude oil price expectations for the rest of 2021 to $65 per barrel from $60 per barrel earlier. This forecast is significantly higher than about $43 per barrel that ONGC realized in FY21.

The higher crude prices, along with a modest 5-7 per cent growth in the company's production volume, should push its EBITDA up by 20-25 per cent to about Rs 85,000 crore during FY22.

"We estimate the company's debt-to-EBITDA ratio will strengthen to about 1.6x during this period, from about 1.9x in FY21," the agency added.

ONGC will maintain prudent capital investments over FY22, largely funded with operating cash flows. The company showed good flexibility in scaling back investments over FY21 amid challenges due to the Covid-19 pandemic. Its capital expenditure fell to about Rs 43,000 crore in FY21 from close to Rs 55,000 crore in the previous year.