| Bharat Petroleum Corporation Limited | ||||||||||||
| Long-term rating continues on 'Watch Developing'; short-term rating reaffirmed | ||||||||||||
| Rating Action | ||||||||||||
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| 1 crore = 10 million | ||||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ ratings on the long-term bank facilities and non convertible debentures of Bharat Petroleum Corporation Limited (BPCL) continues to be on 'Rating Watch with Developing Implications'. The ratings on the short-term bank facilities and commercial paper have been reaffirmed at 'CRISIL A1+'.
The ratings were placed on watch on November 29, 2019, following the receipt of approval from the Cabinet Committee on Economic Affairs (CCEA) for divestment of the entire shareholding of Government of India (GoI) in BPCL (and management control thereon) to a strategic buyer.
In March 2021, post receipt of technical bids, the GoI provided data room access to qualified bidders so as to initiate the due diligence process and submit the financial bids. The entire transaction should reach closure by end of current fiscal. Nevertheless, BPCL will continue to receive support from the government till the disinvestment is concluded.
On June 30th 2021, BPCL completed the acquisition of 36.62% equity shares for Bharat Oman Refineries Limited (BORL) for a consideration of around Rs 2,399.26 crores, following which BORL has become a WOS for the company. BORL operates an oil refinery with nameplate capacity of 7.8 tonne per annum in Bina.
The rating action also reflects the potential weakening of strategic links between GoI and BPCL, following the CCEA approval and the government’s stance on disinvestment.
CRISIL Ratings continues to monitor developments on the stake sale, change in the government's support philosophy and the credit risk profile of the buyer if the divestment concludes. These will remain key rating sensitivity factors. The linkages shall be reassessed and appropriate rating action will be taken once clarity emerges on identification of a buyer and the transaction structure. Given the strong credit risk profile of BPCL, the impact on the long-term rating, if any, is not expected to be more than two notches.
Sale of petroleum products improved to 9.63 MMT in the first quarter of current fiscal, registering 28% year on year growth along with improvement in marketing margins led to healthy revenue growth of 77% over the same period. However, EBITDA margins slipped by ~400 bps YoY to 3.63% led by unwinding of inventory gain benefits from last fiscal. Average GRM levels also declined to $4.12/bbl in 1Q, FY22 from $6.64/bbl in 4Q, FY21.
The ratings also factor in BPCL's established retail network and branding initiatives, and strong operating efficiency. These strengths are partially offset by exposure to project implementation risk and limited flexibility, given the controlled pricing on LPG and SKO. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of BPCL and its subsidiaries, including Bharat Oman Refineries Limited (BORL; 'CRISIL AA+/watch developing/CRISIL A1+'). This is because CRISIL Ratings believes BORL is strategically important as they reduce BPCL’s dependence on other refiners and enable it to source products for retail operations in central India. Joint ventures (JVs) such as Bharat Renewable Energy Ltd and Bharat Stars Services Pvt Ltd are proportionately consolidated, given their strategic importance to BPCL.
Furthermore, the ratings factor in support from GoI. The rating approach may be altered, based on the outcome of the divestment process.
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 Strength Continued support from government 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, superior kerosene oil (SKO) and liquefied petroleum gas (LPG). Uninterrupted supply of these products is contingent on smooth operations of OMCs such as BPCL. Any diminution in BPCL's strategic importance, or in management control of GoI, till the conclusion of its divestment remains a key rating sensitivity factor.
The government has supported OMCs via budgeted subsidies and discounts from upstream companies, thereby minimizing their sales-related under-recovery burden for LPG and SKO. Post deregulation of diesel, under-recoveries have declined significantly, also aided by favorable crude prices and reduced consumption of subsidized LPG. GoI will continue to extend support by absorbing a large portion of sales-related under recoveries, if any. That said, any change in adequacy and timeliness of government support are rating sensitivity factors.
With the government planning to divest its stake in BPCL, the credit risk profile and support articulation from the acquirer, once identified, would be key rating sensitivity factors.
Established retail network and branding initiatives, support revenue growth Post sale of 100% stake in NRL, BPCL accounts for nearly 14.13% of the country's refining capacity and held around 20% share in the domestic petroleum market as of March 2021. The company commands higher retail market share in key products (29% in Motor Spirit (MS) and around 30% in High Speed Diesel (HSD) as of March 2021). The industry position is underpinned by the company's entrenched marketing and distribution infrastructure, with 18,637 retail outlets as of March-2021. BPCL also has an active domestic LPG customer base of 8.42 crore as of March- 2021, and has undertaken aggressive branding and marketing exercises.
Strong operating efficiency High capacity utilization at 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. Recent completion of modernization and expansion of capacities at refineries in Kochi, Kerala, and Bina, Madhya Pradesh should further enhance the GRM.
Weaknesses Exposure to project implementation risk, given the large investment plans The company has a budgeted capital expenditure outlay (capex) outlay of Rs 100bn for fiscal 2022. Capex spread over the next two fiscals, will be mainly towards petrochemical plants; capacity expansion for bharat stage (BS) VI motor spirit; setting up second-generation ethanol bio refinery in Odisha; cross-country petroleum, oil, and lubricants pipeline and marketing terminals at various locations, and expansion of the retail outlet network. Capex also includes investment in subsidiaries: Bharat Petro Resources Ltd (BPRL) and Bharat Gas Resources Limited (BGRL) to support exploration and production, and expansion of the CGD network.
Limited pricing flexibility for SKO and LPG BPCL faces under-recoveries because of controlled prices of domestic SKO and LPG. While the government has provided budgetary support, receipts of subsidies are delayed in the absence of an institutionalized mechanism to meet under-recoveries. This risk is partially offset by deregulation of prices of petrol and diesel (major contributor to under-recoveries), implementation of the Direct Benefit Transfer scheme (DBT; or Pratyaksha Hastaantarit Laabh) for LPG, ongoing implementation of DBT scheme for SKO, and clarity on subsidy sharing provided by the government. These initiatives should help streamline the mechanism for meeting under-recoveries.
However, timely receipt of subsidy and a well-defined institutionalized mechanism will be necessary for ensuring the financial health of the sector in the long-run. |
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 enhance financial flexibility. As of March 2021, the company has cash & equivalents of around Rs 15,000 crore built-up as a result of strong operational cash flows and divestment proceeds. Capex of around Rs 10,000 crore in fiscal 2022, is likely to be met through internal accrual and partly via external debt of Rs 2,000-3,000 crore. Repayment of long-term debt of around Rs 5,000 crore in fiscal 2022, may be funded through operational cash flow. Adequate liquidity has ensured low utilization of the fund-based limit of Rs 13,000-14,000 crore. |
Rating Sensitivity Factors Downward factors
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About the Company BPCL, a government undertaking (52.98% ownership as on September 30, 2020), was set up as Bharat Refineries Ltd (BRL) in 1976, by merging Burmah Shell Oil Storage and Distribution Company of India Ltd with Burmah Shell Refineries Ltd. In 1977, BRL was renamed as BPCL.
BPCL is an integrated refining and marketing company. It is India's second-largest oil marketing and the third-largest refining company, with a consolidated refining capacity of 35.3 mtpa, representing 14.13% of India's total installed capacity. The company operates two refineries, both along the west coast: a 12-mtpa refinery in Mumbai, and a 15.5-mtpa refinery in Kochi. Additionally, BORL operates a 7.8-mtpa refinery in Bina. Retail operations are supported by a nationwide marketing network comprising 18,637 retail outlets and 2,241 kilometre of product pipeline. |
Key Financial Indicators - (Consolidated)*
*Above numbers reflect analytical adjustments made by CRISIL Ratings; Projected |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
##There is interchangeability of fund base Limits to the tune of Rs 4,600 crores (IDBI ' Rs 200 crores, ICICI ' Rs 1,200 crores,Standard Chartered Bank ' Rs 200 crores, Union Bank ' Rs 1,300 crores and Bank of India ' Rs 1,700 crores) *Axis non fund based limits are based on actual utilization **Revolving line of credit sanctioned by Reserve Bank of India #Proposed |
Annexure - List of Entities Consolidated
*Proportionately consolidated for FY 20 and before; 100% subsidiary of BPCL post June 30, 2021 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Fund-Based Facilities | 5500 | State Bank of India | CRISIL AAA/Watch Developing |
| Fund-Based Facilities## | 1700 | Bank of India | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 500 | Union Bank of India | CRISIL AAA/Watch Developing |
| Fund-Based Facilities## | 1300 | Union Bank of India | CRISIL AAA/Watch Developing |
| Fund-Based Facilities## | 200 | IDBI Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 1 | RBL Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 5 | UCO Bank | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 1 | Axis Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 340 | YES Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 10 | The Federal Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 5 | IDFC FIRST Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 1400 | HDFC Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities## | 1200 | ICICI Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities## | 200 | Standard Chartered Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 140 | BNP Paribas Bank | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 60 | Deutsche Bank | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 50 | IndusInd Bank Limited | CRISIL AAA/Watch Developing |
| Fund-Based Facilities | 600 | Kotak Mahindra Bank Limited | CRISIL AAA/Watch Developing |
| Non-Fund Based Limit | 4000 | HDFC Bank Limited | CRISIL A1+ |
| Non-Fund Based Limit | 858 | Union Bank of India | CRISIL A1+ |
| Non-Fund Based Limit | 5700 | ICICI Bank Limited | CRISIL A1+ |
| Non-Fund Based Limit | 4860 | State Bank of India | CRISIL A1+ |
| Non-Fund Based Limit | 1250 | IndusInd Bank Limited | CRISIL A1+ |
| Non-Fund Based Limit | 50 | Kotak Mahindra Bank Limited | CRISIL A1+ |
| Non-Fund Based Limit* | 34 | Axis Bank Limited | CRISIL A1+ |
| Proposed Fund-Based Bank Limits | 18884 | Not Applicable | CRISIL AAA/Watch Developing |
| Short Term Bank Facility** | 5576 | State Bank of India | CRISIL A1+ |
| Short Term Bank Facility** | 5576 | Bank of India | CRISIL A1+ |
| This Annexure has been updated on 9-Sep-2021 in line with the lender-wise facility details as on 11-Aug-2021 received from the rated entity | |||
##There is interchangeability of fund base Limits to the tune of Rs 4,600 crores (IDBI ' Rs 200 crores, ICICI ' Rs 1,200 crores,Standard Chartered Bank ' Rs 200 crores, Union Bank ' Rs 1,300 crores and Bank of India ' Rs 1,700 crores)
*Axis non fund based limits are based on actual utilization
**Revolving line of credit sanctioned by Reserve Bank of India
Criteria Details
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