Fitch Ratings says that the large investment plans announced by Indian Oil Corporation (IOC; BBB-/Stable) are in line with the agency's expectations that are incorporated in the assessment of its standalone credit profile of 'BB+'. Fitch equalises IOC's ratings with that of its largest shareholder, the state of India (BBB-/Stable) due to their strong operational and strategic linkages.

IOC announced on 15 September that capex would be Rs 1,700 billion-1,800 billion over the next six years, including around Rs 150 billion in the financial year ending March 31, 2017 (FY17) and around Rs 250 billion each in FY18 and FY19. Fitch has already factored in most of the capex over the next three years, and we see no significant change to our current expectations as a result of this announcement. We continue to expect IOC's free cash flow to remain negative over the medium term, due to the high capex.

However, we still expect IOC's financial profile to remain stable due to strong volume growth and relatively robust refining margins. We consequently expect IOC's credit metrics to weaken marginally; with net leverage (net adjusted debt/operating EBITDA) of around 3x (FY16: 2.3x), but to remain within levels commensurate with its standalone profile over the medium term.

Fitch has not factored in IOC's investment in the proposed refinery project in coastal Maharashtra. This project is planned along with the other state-owned oil-marketing companies-Bharat Petroleum Corporation (BBB-/ Stable) and Hindustan Petroleum Corporation (BBB-/ Stable).

We anticipate no major investments associated with this project in the medium term, given the early stages of the proposed project. Fitch will take into account IOC's investment share in the proposed project once there is more clarity and certainty on the time and quantum of the investments.

Shares of the company gained Rs 4.85, or 0.85%, to trade at  Rs 574.60.  The total volume of shares traded  was  52,873 at the BSE (10.59 a.m., Monday).