Indian Oil, BPCL, OIL may come under pressure after hefty dividends, buybacks; here’s why

After paying hefty returns to shareholders in the form of dividends and share buyback, state-owned oil marketing companies’ including Indian Oil Corporation, Bharat Petroleum Corporation and Oil India may see heightened pressure on and face the risk of government intervention in fuel prices during the elections. According to Fitch Ratings, the firms’ financial profiles may be at risk in the near to medium term due to pressure from the state to increase shareholder returns.

Notably, IOC, BPCL and OIL have declared high interim dividends of 67.5% to 110% of the face value of their shares, and undertook share buybacks in the financial year ended 31 March 2019 (FY19). “These were likely to have been driven by pressure from the Indian government to increase shareholder returns to shore up the weak fiscal position and finance promises made ahead of elections in April and May 2019,” Fitch said in its report.

Fitch noted that the higher shareholder returns will put more pressure on the financial profiles of the companies, which have large investment plans for the next two years.