| Bharat Petroleum Corporation Limited | ||||||||||||||||||||
| 'CRISIL AAA/Stable' assigned to Non Convertible Debentures | ||||||||||||||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||||||||||||||
| 1 crore = 10 million | ||||||||||||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to Rs 2,440 crore non-convertible debentures (NCDs) of Bharat Petroleum Corporation Limited (BPCL). Also, the ‘CRISIL AAA/Stable/CRISIL A1+’ ratings has been reaffirmed to the bank facilities and debt instruments of the company.
CRISIL Ratings has migrated its rating on Rs. 16,387 crore of bank facilities and Rs. 2440 crore of debt instruments from Bharat Oman Refineries Ltd (BORL), following its amalgamation with BPCL and on receipt of the letter of novation. Following the amalgamation of BORL with BPCL and at the company’s request, CRISIL Ratings has withdrawn its ratings on the debt instruments and bank facilities of BORL. The withdrawal is in line with CRISIL Rating's policy on withdrawal of ratings.
Further, rating on NCDs aggregating Rs 2,440 crore have been withdrawn (see annexure 'Details of Rating Withdrawn' for details) on company’s request and on required receipt of redemption confirmation. Further, CRISIL ratings has also withdrawn its rating on unplaced commercial paper programmes aggregating Rs. 12,000 on the request of company. These withdrawals are in line with CRISIL Ratings’ policy on withdrawal of ratings.
The ratings continue to reflect BPCL’s established retail network and branding initiatives and its strong operating efficiency. In fiscal 2022, revenues grew by 50% on a y-o-y basis, to Rs. 346,791 crore, led by pickup in demand and a low base effect. Improvement in product spreads, an uptake in demand and rising crude oil prices, led to a rise in overall gross refining margins (GRM) for the company, which improved to $9.66/bbl. (restated) in fiscal 2022 from $ 4.06/bbl. in fiscal 2021. Operating performance was adversely impacted in the first nine month of fiscal 2023, despite a rise in GRMs, as the significant rise in crude oil prices were not passed on to the customers, taking a hit on marketing margins. GRM has significantly improved to $20.08/bbl in the first nine of fiscal 2023 against GRM of $ 6.98 /bbl in corresponding period of previous fiscal.
The ratings also factor in the control and majority ownership by the GoI, wherein continued support is expected. These strengths are partially offset by exposure to project implementation risk and inherent volatility in the operating profitability owing to fluctuation in input prices. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of BPCL and its subsidiaries and joint ventures (JVs) - the subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. CRISIL Ratings believes these entities are strategically important for, and have considerable operational linkages with, BPCL. The ratings also factor in governmental support.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The oil refining and marketing activity is strategic for India's economic development. Oil marketing companies (OMCs) dominate the domestic market for key petroleum products such as motor spirits, high-speed diesel, jet fuel and liquefied petroleum gas (LPG). Uninterrupted supply of these products is contingent on smooth operations of OMCs, such as BPCL. Government has showcased its support towards this industry wherein even during fiscal 2023, a one-time subsidy grant of Rs. 5,582 crore was provided for compensating BPCL for the under recoveries incurred on domestic LPG sales. The company is thus expected to continue to receive the required support from the GoI, wherein any change in adequacy and timeliness of this support would continue to remain key monitorables.
BPCL accounts for nearly 14.13% of the country's refining capacity and held around 25% share in the domestic petroleum market as of September 30,2022. The company commands a higher retail market share in key products (29% in motor spirit and around 30% in high-speed diesel). The industry position is underpinned by the company's entrenched marketing and distribution infrastructure with 20,443 retail outlets as of September-2022. BPCL also has an active domestic LPG customer base of 9.17 crore as of September 2022 and has undertaken aggressive branding and marketing exercises.
High-capacity utilization of refineries ensures strong operating efficiency. Furthermore, proximity of refineries to the coast ensures logistical benefit and helps control the cost of transportation in procuring crude. The modernization and expansion of capacities undertaken of the refineries in Kochi, Kerala, and Bina, Madhya Pradesh should further enhance the GRM.
Weaknesses:
The company has a budgeted capital expenditure outlay (capex) outlay of Rs. 1,40,000 crore, over the next five fiscals, which will mainly be towards petrochemical plants, improving refining efficiencies, gas proliferations, expansion of the city gas distribution network. Consolidated gearing has increased to around 1.6 times as on March 31, 2022, from 1.3 times as on March 31, 2021, due to impacted operating performance leading to higher dependence on debt for capex and working capital. Going forward, degree of reliance on debt to meet capital expenditure (capex) needs for the company will remain a key monitorable.
Crude oil prices have been volatile over the past few years. Prices which fell sharply to around USD 20 per barrel (bbl.) towards end of March 2020, subsequently recovered to its pre-pandemic levels wherein it averaged at around USD 64 per bbl. by end of fiscal 2021. The geopolitical tensions have, once again, increased crude oil prices to above $ 100/bbl during first quarter of current fiscal which has normalized to around $ 85/bbl during third quarter of current fiscal 2023. Average inventory of crude oil and finished goods of around 60 days, makes BPCL’s operating performance vulnerable to fluctuations in valuations of inventory stock. BPCL imports around 80% crude oil requirement, and thus remains susceptible to volatility in the rupee-dollar exchange rate, and a corresponding increase in value of imports. BPCL compensates these volatilities through marketing margins, however company has incurred losses during first nine months of fiscal 2023 as rise in price could not be passed on end customer. BPCL’s ability to compensates these volatilities through marketing margins will remain a key monitorable going forward. |
Liquidity: Superior Financial flexibility is high, driven by support from the government. The portfolio of oil bonds, large unutilized bank limit and access to low-cost funds from both domestic and overseas markets, also enhances financial flexibility. As of December 2022, the company has cash & equivalents of around Rs 2,000 crore. BPCL has incurred capex of Rs 9,123 crore till 31st December, 2022 against the budgeted capex of Rs 10,000 crore in fiscal 2023, despite weak performance during the period. The capex was met through a mix of internal accruals and external debt funding. Adequate liquidity has ensured low utilization of the fund-based limit of Rs 22,500 crore.
Environment, social, and governance (ESG) profileCRISIL Ratings believes that the company’s Environment, Social, and Governance (ESG) profile supports its already strong credit risk profile, which even benefits from the support received from the GoI.
The oil and gas sector has a significant impact on the environment due to the high carbon emissions released from the refineries and petrochemical plants. In line with this, BPCL has been continuously focusing on mitigating its environmental and social risks to ensure minimal impact.
Key ESG highlights:
There is growing importance of ESG amongst investors and lenders. The commitment of BPCL to ESG principles will play a key role in enhancing stakeholder confidence, given its 48% share of market borrowing in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable CRISIL Ratings believes BPCL will continue to benefit from the management control and majority ownership of the GoI. |
Rating Sensitivity factors Downside factors
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About the Company BPCL, a government undertaking (52.98% ownership as on March 31, 2022), is an integrated refining and marketing company. It is India's second-largest oil marketing and third-largest refining company, with consolidated refining capacity of 35.3 MTPA, representing 14.13% of India's total installed capacity. The company operates two refineries along the west coast: a 12-MTPA refinery in Mumbai and a 15.5-MTPA refinery in Kochi. Additionally, Bharat Oman Refineries Limited(BORL) which operated a 7.8-MTPA refinery in Bina has now been merged with BPCL. Retail operations are supported by a nationwide marketing network comprising 20,443 retail outlets and 2,597 km product pipeline.
BPCL has issued corporate guarantees in favour of BPRL International BV (a wholly owned subsidiary of Bharat PetroResources Limited) for loans amounting to $ 128.75 million (issued to Bank of Baroda, New York Branch) and $ 643.75 million (issued to Bank of Baroda, IFSC Branch)
For the nine month ended December 31, 2022, BPCL reported net loss of Rs(-) 4,739 crore on revenues of Rs 355,072 crore as against PAT of Rs 8,833 crore on revenue of Rs 242,506 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators (consolidated)*
*Above numbers reflect analytical adjustments made by CRISIL Ratings. |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
##yet to be placed
Annexure - Details of Instrument(s) withdrawn
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Annexure – List of entities consolidated
*100% subsidiary of BPCL for FY22, BORL has been merged with BPCL effective July 01, 2022 **100% subsidiary of BPCL for FY22, BGRL has been merged with BPCL effective August 16, 2022 |
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 01-Mar-23 in line with the lender-wise facility details as on 11-Aug-21 received from the rated entity.
Criteria Details
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