Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AAA/Stable’ rating to the Rs.1440 crore non-convertible debentures of Bharat Petroleum Corporation Ltd (BPCL) while reaffirming its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank loan facilities and existing debt instruments. Also, the rating on Rs 1000 crore of NCDs is withdrawn (see 'Annexure - Details of Rating Withdrawn') on receipt of redemption confirmation from debenture trustee. The rating withdrawal is in line with the policy of CRISIL Ratings.

  

The ratings continue to reflect BPCL’s established market position in the oil refining and marketing sector in India, its branding initiatives and strong operating efficiency. The ratings also factor in the company's strategic importance to the Government of India (GoI) and expectation of continued support from it. These strengths are partially offset by exposure to project implementation risk and inherent volatility in operating profitability owing to fluctuations in input prices.

 

Operating performance of BPCL had improved sharply in fiscal 2024, with operating margin of ~7% on the back of lower crude oil procurement price and no corresponding change in the prices of key petroleum products – high-speed diesel and motor spirit - resulting in healthy marketing margins. While gross refining margin (GRM) remained healthy at $14.1 per bbl (barrel) in fiscal 2024, it has normalised to $7.86 per bbl in the first quarter of fiscal 2025, led by moderation in diesel cracks as well as lower discounts on crude imported from Russia relative to the previous fiscal. GRM for the year is expected at $7-9 per bbl. 

 

Financial risk profile improved in fiscal 2024 with healthy accretion to networth and lower debt levels given moderate operating cashflows; adjusted gearing (excluding lease liabilities) stood at 0.73 time as on March 31, 2024 and is likely to remain less than 1 time going forward.

 

Amongst the planned capital expenditure (capex) plans of the company, a significant investment of Rs 49,000 crore is towards setting up an ethylene cracker plant and brownfield expansion of the Bina (Madhya Pradesh) refinery, wherein capacity is to increase from 7.8 MMTPA to 11 MMTPA, which would primarily cater to the feed requirements of petrochemical plants. The main output from this facility will be polypropylene, which will be sold majorly in the domestic market. This project which is expected to be completed by fiscal 2029 will be funded in a debt: equity mix of 63:37. While the company has an established track record in the oil refining space, timely implementation of this schedule within the budgeted time and cost as well as the return on these investments would be a key monitorable.

Analytical Approach

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 to, and have considerable operational linkages with, BPCL. The ratings also factor in government 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:

Strategic importance to, and continued support from, GoI

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 spirit, high-speed diesel, jet fuel and liquefied petroleum gas (LPG). Uninterrupted supply of these products is contingent on the smooth operations of OMCs, such as BPCL. The company remains strategically important to GoI and continues to play a key role in implementing the government's socio-economic policies. GoI also holds 52.98% stake in BPCL and exerts management control. Any diminution in the company's strategic importance or in GoI’s shareholding will remain key monitorable.

 

Established market position in the oil refining and marketing sector and branding initiatives support revenue growth

BPCL accounts for nearly 14% of the country's refining capacity and holds ~20% share in the domestic petroleum products market. The company commands a higher retail market share in key products such as motor spirit and high-speed diesel. The market position is underpinned by the company's entrenched marketing and distribution infrastructure with 22,011 retail outlets as of June 2024. BPCL also has an active domestic LPG distributor base of 6,255 crore as of June 2024 and has undertaken aggressive branding and marketing exercises.

 

Strong operating efficiency

High-capacity utilisation of refineries ensure strong operating efficiency. Furthermore, proximity of refineries to the coast ensures logistical benefit and helps control the cost of transportation in procuring crude. The modernisation and expansion of capacities undertaken at the refineries in Kochi, Kerala, and Bina over the past few years should support the GRMs.

 

Weaknesses:

Moderate financial risk profile 

The balance sheet position of BPCL has improved in fiscal 2024, led by a one-off steep rise seen in operating profit. This led to outstanding debt (excluding lease liabilities) reducing to Rs 45,485 crore as on March 31, 2024 (against Rs 69,376 crore as on March 31, 2023) due to lower working capital borrowings and repayment/prepayment of long-term debt. Overall gearing thus improved to 0.73 times as on March 31, 2024 from 1.7 timesin the previous fiscal. Gearing is expected to remain at less than 1 time going forward. The company has sizeable capex plans over the medium term, wherein its implementation within the budgeted time and costs as well as the returns earned on the added capacities would be close monitorables.

 

Exposed to project implementation and stabilisation risks

BPCL is in the process of undertaking a brownfield expansion at Bina refinery with an expected capital outlay of Rs 49,000 crore, which is a sizeable expansion comprising of nearly 50% of the company’s networth. While execution is at the initial stage, the company has experience of undertaking sizeable refinery capex and operates a petrochemical facility at its Kochi unit. The project is overseen by a team of experienced personnel, contractors and external consultants who have expertise in handling similar projects. However, there are technical complexities in setting up the petrochemical unit and the performance of the petrochemical sector remains volatile. With around 60% of the capex expected to be debt-funded, any significant time and cost overruns could impact the leverage metrics of the company. Once commissioned, the ability to ramp-up and achieve optimum capacity utilisation and operating efficiency will be critical.

 

Susceptibility to volatility in crude oil prices

Crude oil prices have been volatile over the past few years. Prices of crude oil for the Indian basket fell sharply to a low of around $20 per bbl in April 2020 before rising significantly to over $110 per bbl in March 2022; average procurement price stood around $93 per bbl in fiscal 2023, around $83 per bbl in fiscal 2024 and currently averages at 81.95 per bbl as of year-to-date fiscal 2025. Average inventory of crude oil and finished goods of 40-50 days make the operating performance of BPCL vulnerable to fluctuations in valuations of inventory. BPCL imports ~80% of its crude oil requirement and, thus, remains susceptible to volatility in the rupee-dollar exchange rate and a corresponding increase in the value of imports. BPCL compensates these volatilities through the marketing margin, and the company’s ability to continue to do so will remain a key monitorable.

Liquidity: Superior

BPCL, a Maharatna company, enjoys strong financial flexibility, driven by support from GoI and access to low-cost funds from domestic and overseas markets. As of March 2024, the company’s cash and equivalents (including oil bonds) increased to around Rs 10,636 crore against Rs 6,860 crore as of March 2023. Healthy cash accrual and available liquidity should be sufficient to meet scheduled debt repayment obligations of Rs 11,000-13,000 crore each in fiscals 2025 and 2026.

 

Environment, social, and governance (ESG) profile

CRISIL Ratings believes that the company’s Environment, Social, and Governance (ESG) profile backs its already strong credit risk profile, which even benefits from the support received from 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:

• BPCL has undertaken efforts towards reducing its greenhouse gas (GHG) emissions. Total GHG emissions have come down by 8.64 MMTCO2e in fiscal 2024 over the previous fiscal.  BPCL has set a target to become Net Zero for its Scope 1 and Scope 2 GHG emissions by 2040.
• To increase consumption of renewable energy, during fiscal 2023, BPCL has increased the capacity of renewable energy production from 62.3 megawatt (MW) to 94.89 MW in fiscal 2024, while Mumbai refinery, Bina refinery, pipelines, retail, LPG and aviation locations have implemented 100% energy efficient lights and other locations have planned to achieve this target by 2025.
• BPCL disposes its hazardous waste in a responsible manner, as per guidelines of the Central Pollution Control Board.
• The company has a good track record of customer grievance redressal and resolution of sexual harassment cases. Gender diversity, however, remained marginally lower than industry peers with women employees forming ~7% of the total workforce in fiscal 2024.

 

There is growing importance of ESG among investors and lenders. BPCL’s continued commitment to ESG principles will play a key role in enhancing stakeholder confidence and ensure ease of raising capital from markets where ESG compliance is a key factor.

Outlook: Stable

CRISIL Ratings believes BPCL will continue to benefit from the management control and majority ownership of GoI.

Rating Sensitivity Factors

Downward Factors

• Higher-than-expected and sustained deterioration in BPCL’s standalone performance
• Change in GoI’s support philosophy or reduction in stake below 51%

About the Company

BPCL, a government undertaking (52.98% ownership as on June 30, 2024), 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% 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 Ltd (BORL) which operated a 7.8-MTPA refinery in Bina was merged with BPCL in July 2022. Retail operations are supported by a nation-wide marketing network comprising 22011 retail outlets and 2,600 km product pipeline.

 

For the first quarter ended June 30, 2024, BPCL reported net profit of Rs 3,015 crore on revenue of Rs 1,13,095 crore as against  Rs 4,224 crore and Rs 1,12,985 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated)*

Particulars	Unit	2024	2023
Revenue	Rs crore	448,725	473,749
Profit after tax (PAT)	Rs crore	26,859	2,131
PAT margin	%	6.0%	0.4
Adjusted debt**/adjusted networth	Times	0.73	1.7
Adjusted interest coverage	Times	11.7	3.3

*Above numbers reflect analytical adjustments made by CRISIL Ratings

**excludes lease liabilities of Rs 9,114 crore as of March 2024 and Rs 8,921  as of March 2023

Any other information: Not Applicable