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Profitability of Indian downstream sectors likely to hit in FY27 amid West Asia conflict: ICRA
Apr-30-2026

Rating agency ICRA in its latest report has said that the profitability of key downstream sectors i.e. oil marketing segment, fertiliser, chemical and City Gas Distribution (CGD) sector is likely to be impacted in FY2027, on account of the raw material cost pressures and supply constraints, amidst the ongoing West Asia conflict. It further added that the moderation in the profitability is expected to result in the moderation in the credit profile for few of the sectors.

ICRA noted that the disruption in the Strait of Hormuz (SoH) has impacted 20% of global oil and LNG trade and sizeable share of supplies of various fertilisers and chemicals, constraining the availability of these products. This has raised prices across commodities i.e. crude oil, natural gas, chemicals, fertiliser, exerting cost pressures in downstream industries.  As per the report, the increase in chemical prices is likely to be passed on to end users to an extent, and demand to witness a correction once the initial stockpiling phases out.

The report further stated that the fertiliser sector faces significant cost pressures driven by rise in the sulphur and ammonia prices, which in turn feed into other raw material and finished products. While a major share of the natural gas requirement is currently being met through imports of spot LNG cargoes, the availability of adequate natural gas on an ongoing basis is critical amid global LNG supply disruption. 

The rating agency said that the City Gas Distribution (CGD) sector, although protected to some extent owing to preferable natural gas allocation, continues to face rising cost pressures amid currency depreciation and rising gas prices. For the CGD entities, ICRA expects the profitability on PNG-Domestic (PNG-D) to remain stable as the demand is being met through preferential allocation of the Administered Price Mechanism (APM) gas. However, for the CNG segment, the margins are expected to face headwinds on account of the increased gas costs as well as currency depreciation which may not get passed on fully to the consumers.

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