Rating Rationale
July 27, 2018 | Mumbai
Bharat Petroleum Corporation Limited
'CRISIL A1+' assigned to CP
Rating Action
Total Bank Loan Facilities Rated Rs.68343.5 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.2000 Crore Commercial Paper CRISIL A1+ (Assigned)
Rs.1000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.1000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.15000 Crore Short Term Debt Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has assigned 'CRISIL A1+' rating to the Rs 2000 cr commercial paper programme of Bharat Petroleum Corporation Ltd (BPCL) while reaffirming its ratings on the bank facilities and debt instruments at 'CRISIL AAA/Stable/CRISIL A1+'. 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

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
* 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 21% share in the domestic petroleum market as on March 2018. The market position is underpinned by entrenched marketing and distribution infrastructure, with around 14,447 retail outlets. The company also had an active domestic LPG customer base of 6 crore as of March 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 metric tonne per annum (mmtpa), 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.

* 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 mmtpa to 15.5 mmtpa, 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

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.

Downward scenario
* Significant increase in sales-related under-recoveries on account of adverse movement in crude oil price and foreign exchange rates, with inadequate pass through in retail price or compensation from GoI.

About the Company

BPCL, a GoI undertaking (53.89% ownership as on June 30, 2018), 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.
BPCL is an integrated refining and marketing company. It is the second-largest oil marketing and the third-largest refining company in India, with a consolidated refining capacity of 36.5 mmtpa, representing 15% of India's total installed capacity. The company operates two refineries, both along the west coast: a 12-mmtpa refinery in Mumbai and a 15.5-mmtpa refinery in Kochi. It also owns a 61.65% stake in NRL, which has a refinery with capacity of 3 mmtpa in North-East India. BPCL, through its JV BORL, operates a 6-mmtpa refinery in Bina. Retail operations are supported by a nationwide marketing network, comprising 14,447 retail outlets and 1948 kilometre of product pipelines.

Key Financial Indicators (Consolidated)*
Particulars Unit 2018^ 2017#
Revenue Rs Cr. 2,35,770 2,01,894
Profit After Tax Rs Cr. 9,792 9,507
Profit Margin % 4.2 4.7
Adjusted Debt/Adjusted Networth Times 0.96 1.30
Interest coverage Times 15.39 21.42
*Above numbers reflects analytical adjustments made by CRISIL Ratings;
#Historical financial statements prepared under Indian GAAP vary from financial statements prepared and presented in accordance with IndAS, fiscal 2017 onwards
^Provisional numbers

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)
ISIN Name of instrument Date of allotment Coupon Rate (%) Maturity date Issue size (Rs Cr) Rating assigned with outlook
INE029A07075 Debentures 10-Mar-17 7.35% 10-Mar-22 550.00 CRISIL AAA/Stable
INE029A08040 Debentures 16-Jan-18 7.69% 16-Jan-23 750.00 CRISIL AAA/Stable
NA Debentures** NA NA NA 700.00 CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 2000.00 CRISIL A1+
NA Short Term Debt Programme NA NA 7-365 days 15000.00 CRISIL A1+
NA Fund-Based Facilities * NA NA NA 22855.0 CRISIL AAA/Stable
NA Fund-Based Facilities# NA NA NA 9912.50 CRISIL AAA/Stable
NA Proposed Fund-Based Bank Limits NA NA NA 610.00 CRISIL AAA/Stable
NA Proposed Fund-Based Bank Limits $ NA NA NA 16561.50 CRISIL AAA/Stable
NA Non-Fund-Based Limit NA NA NA 16312.0 CRISIL A1+
NA Proposed Non-Fund-Based Limits NA NA NA 110.00 CRISIL A1+
NA Proposed Non-Fund-Based Limits@@ NA NA NA 1982.50 CRISIL A1+
** Proposed
* 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
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  2000.00  CRISIL A1+    --    --    --    --  -- 
Non Convertible Debentures  LT  1300.00
CRISIL AAA/Stable  27-04-18  CRISIL AAA/Stable  10-04-17  CRISIL AAA/Stable  15-04-16  CRISIL AAA/Stable  27-10-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
            20-02-17  CRISIL AAA/Stable           
Short Term Debt  ST  15000.00  CRISIL A1+  27-04-18  CRISIL A1+  10-04-17  CRISIL A1+  15-04-16  CRISIL A1+  27-10-15  CRISIL A1+  CRISIL A1+ 
            20-02-17  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  49939.00  CRISIL AAA/Stable  27-04-18  CRISIL AAA/Stable  10-04-17  CRISIL AAA/Stable  15-04-16  CRISIL AAA/Stable  27-10-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
            20-02-17  CRISIL AAA/Stable           
Non Fund-based Bank Facilities  LT/ST  18404.50  CRISIL A1+  27-04-18  CRISIL A1+  10-04-17  CRISIL A1+  15-04-16  CRISIL A1+  27-10-15  CRISIL A1+  CRISIL A1+ 
            20-02-17  CRISIL A1+           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Fund-Based Facilities* 22855 CRISIL AAA/Stable Fund-Based Facilities* 22855 CRISIL AAA/Stable
Fund-Based Facilities# 9912.5 CRISIL AAA/Stable Fund-Based Facilities# 9912.5 CRISIL AAA/Stable
Non-Fund Based Limit 16312 CRISIL A1+ Non-Fund Based Limit 16312 CRISIL A1+
Proposed Fund-Based Bank Limits 610 CRISIL AAA/Stable Proposed Fund-Based Bank Limits 610 CRISIL AAA/Stable
Proposed Fund-Based Bank Limits$ 16561.5 CRISIL AAA/Stable Proposed Fund-Based Bank Limits$ 16561.5 CRISIL AAA/Stable
Proposed Non Fund based limits 110 CRISIL A1+ Proposed Non Fund based limits 110 CRISIL A1+
Proposed Non Fund based limits@@ 1982.5 CRISIL A1+ Proposed Non Fund based limits@@ 1982.5 CRISIL A1+
Total 68343.5 -- Total 68343.5 --
* 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
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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