| Bharat Petroleum Corporation Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities and debt instruments of Bharat Petroleum Corporation Ltd (BPCL). The ratings continue to reflect the company's strategic importance to, and expectation of continued support from, the Government of India (GoI). The ratings also factor in established retail network and branding initiatives, and strong operating efficiency. These strengths are partially offset by exposure to project implementation risks, and limited pricing flexibility in the controlled price environment for certain products. |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of BPCL and its subsidiaries, including Numaligarh Refinery Ltd (NRL; 'CRISIL AAA/Stable/CRISIL A1+'); and joint venture (JV), Bharat Oman Refineries Ltd (BORL; 'CRISIL AA+/Stable/CRISIL A1+'). The subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. That's because CRISIL believes NRL and BORL are strategically important to BPCL's business risk profile, as they reduce the latter's dependence on other refiners to source products for retail operations in central India. Furthermore, the ratings factor in support from GoI. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strategic importance to, and continued support of, GoI Oil refining and marketing activity is strategic for India's economic development. Oil marketing companies (OMCs) dominate the domestic markets for key petroleum products, such as motor sprits, high-speed diesel, superior kerosene oil (SKO), and liquefied petroleum gas (LPG). Unhindered supply of these products in the domestic market is contingent on the smooth operations of OMCs such as BPCL. CRISIL believes BPCL will remain strategically important to GoI, and continue to play a key role in implementing the government's socio-economic policies. Any diminution in BPCL's strategic importance, or in GoI's management control will constitute a key rating sensitivity factor. GoI has supported the OMCs through budgeted subsisides and discounts from upstream companies, minimising the OMCs' sales-related under-recovery burden. Post de-regulation of diesel and with favourable crude prices, along with reduced consumption of subsidised LPG, the under-recoveries of OMCs have declined significantly. CRISIL believes GoI will continue to support BPCL by absorbing a large portion of its sales-related under-recoveries, if any. Any change in the adequacy and timeliness of GoI support will constitute a key rating sensitivity factor. * Established retail network and branding initiatives, supporting revenue growth BPCL has 15% share in the country's refining capacity and 20% share in the domestic petroleum market as on December 2017. The market position is underpinned by entrenched marketing and distribution infrastructure, with around 14,255 retail outlets. The company also had an LPG customer base of 6.6 crore as of February 2018. It has undertaken aggressive branding and marketing exercises. These initiatives will help maintain established position in the domestic petroleum market. * Strong operating efficiency BPCL's refineries have high capacity utilisation, which help maintain strong operating efficiency. Furthermore, the proximity of the refineries to the coast gives a logistical advantage, and helps control transportation cost in procuring crude. The refinery in Numaligarh, Assam, with capacity of 3 million tonne per annum (mtpa), has high operational efficiency, reflected in healthy gross refining margin (GRM), even after excluding excise duty benefit, which has been consistently better than that of other public sector refiners. The GRM is expected to continue to improve over the medium term supported by modernisation and capacity expansion of the refineries at Kochi and Bina, Madhya Pradesh. Weaknesses * Exposure to project implementation risks, given the large investment plans The company has undertaken several projects, including increasing refining capacity at Kochi (from 9.5 mtpa to 15.5 mtpa, commissioned in fiscal 2018) and Bina, setting up a petrochemical unit, modernising and augmenting the pipeline and city gas distribution infrastructure, and investing in exploration and production. However, BPCL's experience in implementation and operations of large projects will hold the company in good stead. Nevertheless, project cost and timelines, and stabilisation of operations after completion will be key monitorables. * Limited pricing flexibility for SKO and LPG BPCL also has under-recoveries on account of controlled prices of domestic SKO and domestic LPG. While GoI has provided budgetary support, the absence of an institutionalised mechanism to meet under-recoveries has delayed subsidy receipts in the past. This risk is partially offset by de-reguleration of diesel (which was a major contributer to under-recoveries), implementation of the Direct Benefit Transfer scheme (DBT; or Pratyaksha Hastaantarit Laabh- PAHAL) for LPG, ongoing implementation of DBT for SKO, and clarity given by GoI on subsidy sharing. CRISIL believes these initiatives will help in streamlining the mechanism for meeting under-recoveries. However, timely receipt of subsidy and a well-defined institutionalised mechanism will be necessary for the financial health of the sector on a long-term sustainable basis. |
| Outlook: Stable |
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CRISIL believes BPCL will continue to benefit over the medium term from expectation of continued GoI support because of its strategic and economic importance, and criticality of the sector, to GoI. |
| About the Company |
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BPCL, a GoI undertaking (54.31% ownership), was set up as Bharat Refineries Ltd (BRL) in 1976 by the amalgamation of Burmah Shell Oil Storage and Distribution Company of India Ltd with Burmah Shell Refineries Ltd. In 1977, BRL was renamed BPCL. |
| Key Financial Indicators* | ||||||||||||||||||||||||
^Historical financial statements prepared under Indian GAAP vary from financial statements prepared and presented in accordance with IndAS, fiscal 2017 onwards |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
* Rs 3690.0 crore is interchangeable with non-fund-based facilities #Equivalent to USD 1625 million. 1 USD=INR 61 $ Equivalent to USD 2715 million. 1 USD=INR 61 @@Equivalent to USD 325 million. 1 USD=INR 61 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
#Equivalent to USD 1625 million. 1 USD=INR 61 $ Equivalent to USD 2715 million. 1 USD=INR 61 @@Equivalent to USD 325 million. 1 USD=INR 61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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