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Fitch said govt move on fuel prices to impact profitability of OMCs

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New Delhi: The government directive to state-owned fuel retailers to subsidise petrol and diesel will have a negative impact on their profitability and credit metrics, Fitch Ratings said .
While cutting excise duty by Rs 1.50 per litre, the government had asked Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) to absorb Re 1 per litre increase in fuel rates.
Fitch, however, said the ratings of the three firms will be unaffected as they are driven by state support. The ratings of BPCL and IOC are equalised with the sovereign, while that of HPCL is aligned with its parent, Oil and Natural Gas Corporation Ltd (ONGC).
“The government reduced the prices of petrol and diesel by Rs 2.50 per litre on October 4, 2018 in response to rapid increases since the start of the year – the diesel price in Delhi, for example, has risen by 27 per cent. “Excise duty on these fuels has been cut by Rs 1.50, but the state oil marketing companies (OMCs) have been directed to bear the cost of the additional Re 1 per litre,” Fitch said.
Fuel prices will continue to be adjusted daily depending on future market moves, but the margins earned by OMCs have effectively been narrowed, which amounts to an implicit subsidy for consumers, it said.
“The fuel-price reduction also highlights the regulatory risks for Indian OMCs as a result of rising crude oil prices and the weakening rupee,” it said.
“The elections due in 2019 further increase the risk of price controls if crude oil prices continue to rise or the rupee depreciates further. India liberalised fuel prices in 2014 and moved to daily revision in fuel prices in June 2017.
Fitch believes that any further reversal of these fuel-price reforms will be negative for the OMCs’ financial profiles and could affect the investment climate in the sector.
The government has also requested the state governments to cut local taxes to further reduce fuel prices.
“We estimate that the Re 1 per litre cut absorbed by the OMCs will push up their net leverage (net adjusted debt/ EBITDAR) by 0.5x to 1.5x on an annualised basis, with the impact highest for HPCL, given its larger share of earnings from marketing operations.
“In the case of HPCL and IOC, the reduction in profits will add to debt requirements to fund large ongoing capex,” it said.
Rising crude prices and the depreciating currency are also increasing the working capital requirements of OMCs, driving up debt levels. Fitch expects HPCL’s net leverage (including proportionate consolidation of HPCL-Mittal Energy Limited) to rise to 3.0x-3.5x for the year ending March 2019 (FY19) and deteriorate considerably thereafter if the new policy is kept in place through FY20.
This could significantly reduce the headroom available to HPCL’s current standalone profile of ‘BB’.
“We expect BPCL’s net leverage (including proportionate consolidation of Bharat Oman Refinery Limited) to increase modestly to beyond 2.5x and that of IOC to reach 3x during FY19,” it said.


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Sensex sheds 298.82 to close at 38,811; Nifty shrinks to 11,650

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Mumbai: The benchmark BSE Sensex erased early gains to end 299 points lower Thursday as investors booked profits after stocks soared to record highs after BJP’s strong showing in the Lok Sabha polls.

Sensex and NSE Nifty went on to record highs even as Lok Sabha election results showed that PM Modi-led NDA leading on over 300 seats. However after the euphoria during the morning session, Sensex shed 298.82 to close at 38,811 and Nifty shrank to 11,650 on the closing bell.

During the day, the Sensex hit the 40,000 mark while the Nifty crossed the 12,000-level for the first time ever. However, the indices succumbed to profit booking towards the fag-end of the session.

 

The 30-share Sensex tumbled 298.82 points, or 0.76 per cent, to close at 38,811.39. Similarly, the broader NSE Nifty settled 80.85 points, or 0.69 per cent, lower at 11,657.05.

IndusInd Bank was the biggest gainer in the Sensex pack, rallying 5.23 per cent, followed by Hero MotoCorp, Coal India, Yes Bank, PowerGrid, ICICI Bank, HCL Tech, L&T, Kotak Bank and Bharti Airtel, rising up to 1.56 per cent. On the other hand, Vedanta, ITC, Tata Motors, HDFC twins, Bajaj Finance, Sun Pharma, Tata Steel, TCS, ONGC and Infosys fell up to 5.53 per cent.

Riding on a massive Modi wave sweeping through most parts of India, the BJP was set to return to power Thursday as it led in 298 seats while the Congress trailed far behind with 52, according to trends released by the Election Commission for all 542 seats that went to polls.

“Markets were initially enthused to see the election results falling in line with the exit polls. However, the run up to the D-day was so sharp that it turned out to be a sell on news phenomenon,” said Devang Mehta, Head – Equity Advisory, Centrum Wealth Management.

Participants would now be keen to know the future course of action for bringing the economy back on track, solution to the liquidity situation, the union budget, onset and progress of monsoon in June and most importantly the earnings trajectory, he added.

According to traders, weak cues from other global markets and a depreciating rupee also weighed on investor sentiment. The rupee depreciated 37 paise to 70.04 against the US dollar in afternoon trade. Globally, bourses in Asia ended in the red.

Indices in Europe were also trading on a negative note in early deals. Brent crude, the global oil benchmark, was trading 1.79 per cent lower at USD 69.72 per barrel.

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Silver up on increased offtake; gold steady

Press Trust of India

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New Delhi: Silver prices rallied by Rs 200 to Rs 37,400 per kg in the national capital on Thursday, while gold held steady, according to the All India Sarafa Association.

Traders said silver prices rose on pick-up in offtake by industrial units and coin makers at the local spot market. Globally, spot gold was trading marginally higher at USD 1,276 an ounce, while silver was slightly up at USD 14.53 an ounce in New York.

In the national capital, gold of 99.9 per cent and 99.5 per cent purity dropped by Rs 10 each to Rs 32,670 per ten 10 gram and Rs 32,500 per 10 gram. Sovereign gold, however, held steady at Rs 26,500 per eight gram.

 

Silver ready surged Rs 200 to Rs 37,400 per kg, while weekly-based delivery fell by Rs 66 to Rs 36,234 per kg. Silver coins held flat at Rs 79,000 for buying and Rs 80,000 for selling of 100 pieces.

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India PC mkt declines 8.3 per cent to 2.15 mn units in Jan-Mar qarter

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New Delhi: Personal Computer (PC) shipment in India fell by 8.3 per cent in the January-March quarter of 2019 to 2.15 million units, registering a year-on-year decline for the third consecutive quarter, according to research firm International Data Corporation (IDC).

Besides, big commercial deals, market remained weak due to weak consumer demand, high inventory from previous quarters, and supply issues for Intel chips.

Shipments in the consumer segment saw a 26.5 per cent dip in the said quarter compared to the year-ago period. The commercial PC market saw a total shipment of 1.35 million units in the said quarter, a growth of 7.3 per cent over last year.

 

“The announcement of central elections on March 10, 2019 resulted in the model code of conduct coming into immediate effect further resulting in a delay in execution of government projects and impacting the commercial segment,” IDC said in a statement.

However, IDC expects the overall PC market in India to witness a growth in the second quarter. The commercial market is expected to pick up post new government formation in May, while the consumer market is expected to pick up largely driven by back to school campaign by vendors and online sales.

HP maintained its leadership position with an overall market share of 28.1 per cent in the first quarter of 2019, followed by Dell (25.9 per cent), Lenovo (25.2 per cent) and Acer (11.7 per cent).

The notebook PC (laptop) category accounted for 61.4 per cent of the shipment and witnessed a 9.8 per cent year-on-year decline.

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