Rating Rationale
November 29, 2019 | Mumbai
Bharat Petroleum Corporation Limited
Long-term rating placed on 'Watch developing'
Rating Action
Total Bank Loan Facilities Rated Rs.68343.5 Crore
Long Term Rating CRISIL AAA (Placed on 'Rating Watch with Developing Implications')
Short Term Rating CRISIL A1+ (Reaffirmed) 
Rs.1500 Crore Non Convertible Debentures CRISIL AAA (Placed on 'Rating Watch with Developing Implications')
Rs.1000 Crore Non Convertible Debentures CRISIL AAA (Placed on 'Rating Watch with Developing Implications')
Rs.1000 Crore Non Convertible Debentures CRISIL AAA (Placed on 'Rating Watch with Developing Implications')
Rs.15000 Crore Short Term Debt Programme CRISIL A1+ (Reaffirmed)
Rs.4500 Crore Commercial Paper CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has placed its ratings on the long term bank facilities and non convertible debenture of Bharat Petroleum Corporation Limited (BPCL) on 'Rating Watch with Developing Implications'. CRISIL has reaffirmed its rating on the short term bank facilities and other debt instruments 'CRISIL A1+'.
The rating action follows the receipt of approval from the Cabinet Committee on Economic Affairs (CCEA) for the divestment of Government of India's shareholding of 53.29% in BPCL (and management control thereon) to a strategic buyer. Additionally, CCEA has approved the disinvestment of BPCL's shareholding of 61.65% in Numaligarh Refinery Ltd (NRL), along with the transfer of management control, to a central public sector enterprise operating in the oil and gas sector.
The rating action also reflects the potential weakening in the strategic links between GoI and BPCL following the CCEA approval, and the GoI's articulation of completing the divestment process by March 2020. CRISIL continues to monitor developments on the stake sale, change in GoI's support philosophy, and the credit risk profile of the buyer; these will remain key rating sensitive factors. CRISIL will re-asses the linkages and take an appropriate rating action after adequate clarity emerges on the transaction structure and the identification of a buyer for the government stake.
The ratings continue to reflect the continued support BPCL is expected to receive from the government till the closure of the approved divestiture, 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 given the controlled price environment for certain products.

Analytical Approach

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of BPCL and its subsidiaries, including NRL ('CRISIL AAA/Stable/CRISIL A1+'); and joint venture (JV), Bharat Oman Refineries Ltd (BORL; 'CRISIL AA+/Watch DevelopingCRISIL A1+'). The subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. This is 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 and allow it to source products for retail operations in central India. Furthermore, the ratings factor in support from the government. The rating approach may undergo a change 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
* 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 sprits, high-speed diesel, superior kerosene oil (SKO), and liquefied petroleum gas (LPG). Continuous supply of these products remains contingent on smooth operations of OMCs such as BPCL. Any diminution in BPCL's strategic importance, or in government's management control will constitute a key rating sensitivity factor.
The government has supported OMCs through budgeted subsidies and discounts from upstream companies, thereby minimising their sales-related under-recovery burden. Post-deregulation of diesel, under-recoveries have declined significantly, further aided by favourable crude prices and reduced consumption of subsidised LPG. Government is expected to continue to support BPCL by absorbing a large portion of its 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, supporting revenue growth
BPCL accounts for nearly 15% of the country's refining capacity, and had around 21% share in the domestic petroleum market as of August 2019. Industry position is underpinned by the company's entrenched marketing and distribution infrastructure, with around 14,802 retail outlets. BPCL also has an active domestic LPG customer base of 6.8 crore (as of August 2019), and has undertaken aggressive branding and marketing exercises. These initiatives should help maintain established position in the domestic petroleum segment.

* Strong operating efficiency
High capacity utilisation at refineries ensures strong operating efficiency. Furthermore, proximity of refineries to the coast gives logistical advantage and helps control transportation cost in procuring crude. The refinery at 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, and has fared consistently better than other public sector refiners. The GRM could improve further, supported by modernisation and capacity expansion of the refineries at Kochi, Kerala; and Bina, Madhya Pradesh.

* Exposure to project implementation risk given large investment plans
BPCL has undertaken several projects, which include increasing the 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. Experience in implementing and operating 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 faces under-recoveries owing to controlled prices of domestic SKO and LPG. While government has provided budgetary support, absence of an institutionalised mechanism to meet under-recoveries has led to delay in subsidy receipts. This risk is partially offset by deregulation of petrol and diesel (a major contributer to under-recoveries), implementation of the Direct Benefit Transfer scheme (DBT; or Pratyaksha Hastaantarit Laabh) for LPG, ongoing implementation of DBT for SKO, and clarity given by the government on subsidy sharing. These initiatives are likely to help streamline the mechanism for meeting under-recoveries. However, timely receipt of subsidy and a well-defined institutionalised mechanism will be necessary for ensuring financial health of the sector on a long-term sustainable basis.
Liquidity Superior

Financial flexibility is high, driven by support from the government. The portfolio of oil bonds, large unutilised bank limit, and access to low-cost funds from both domestic and overseas markets can also help raise resources when needed. Annual capital expenditure of Rs 8,000-10,000 crore is likely to be met via internal accrual and external borrowing. Long-term debt of Rs 1,800-1,900 crore in fiscal 2020 and Rs 3,220 crore in fiscal 2021 are expected to be funded via operational cash flows and fresh debt.

Rating sensitivity factors
Downward factors
* Significant increase in sales-related under-recoveries on a sustained basis, leading to rise in amount recoverable under subsidy scheme, from Rs 8,651.69 crore as on March 31, 2019
* Change in support philosophy of GoI
* Weaker credit risk profile of buyer and lower-than-expected support in comparison to government

About the Company

BPCL, a government undertaking (53.3% ownership as on June 30, 2019), 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 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 36.5 mtpa, representing 15% 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. It also owns a 61.65% stake in NRL, which has a refinery with capacity of 3 mtpa in North-East India. BPCL, through its BORL (JV), operates a 6-mtpa refinery in Bina. Retail operations are supported by a nationwide marketing network comprising 14,802 retail outlets and 2,241 kilometres of product pipelines.

Key Financial Indicators - (Consolidated)*
Particulars Unit 2019 2018#
Revenue Rs Cr. 296,985 235,024
Profit after tax Rs Cr. 8,521 9,786
PAT margin % 2.9 4.1
Adjusted debt/adjusted networth Times 1.31 1.15
Interest coverage Times 11.42 17.83
*Above numbers reflect 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

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/Watch Developing
INE029A08040 Debentures 16-Jan-18 7.69% 16-Jan-23 750.00 CRISIL AAA/Watch Developing
INE029A08057 Debentures 11-Mar-19 8.02% 11-Mar-24 1,000.00 CRISIL AAA/Watch Developing
NA Debentures ** NA NA NA 1,200.00 CRISIL AAA/Watch Developing
NA Commercial Paper NA NA 7-365 days 4,500.00 CRISIL A1+
NA Short Term Debt Programme NA NA 7-365 days 15,000.00 CRISIL A1+
NA Fund-Based Facilities * NA NA NA 22,855.0 CRISIL AAA/Watch Developing
NA Fund-Based Facilities# NA NA NA 9,912.50 CRISIL AAA/Watch Developing
NA Proposed Fund-Based
Bank Limits
NA NA NA 610.00 CRISIL AAA/Watch Developing
NA Proposed Fund-Based
Bank Limits $
NA NA NA 16,561.50 CRISIL AAA/Watch Developing
NA Non-Fund-Based Limit NA NA NA 16,312.0 CRISIL A1+
NA Proposed Non-Fund-
Based Limits
NA NA NA 110.00 CRISIL A1+
NA Proposed Non-Fund-
Based Limits@@
NA NA NA 1,982.50 CRISIL A1+
** Proposed
* Rs 3,690.0 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 - List of entities consolidated
Company % Consolidation
Bharat Gas Resources Ltd 100.00 Subsidiary
Bharat Oman Refineries Ltd 50.00 Joint Venture
Bharat PetroResources JPDA Ltd 100.00 Subsidiary
Bharat PetroResources Ltd 100.00 Subsidiary
Bharat Renewable Energy Ltd 33.33 Joint Venture
Bharat Stars Services Pvt Ltd 50.00 Joint Venture
BPCL-KIAL Fuel Farm Pvt Ltd 74.00 Joint Venture
BPRL International BV 100.00 Subsidiary
BPRL International Singapore Pte Ltd. 100.00 Subsidiary
BPRL International Ventures BV 100.00 Subsidiary
BPRL Ventures BV 100.00 Subsidiary
BPRL Ventures Indonesia BV 100.00 Subsidiary
BPRL Ventures Mozambique BV 100.00 Subsidiary
Brahmaputra Cracker and Polymer Ltd 10.11 Associates
Central UP Gas Ltd 25.00 Joint Venture
Delhi Aviation Fuel Facility Pvt Ltd 37.00 Joint Venture
DNP Ltd 26.00 Joint Venture
Falcon Oil & Gas BV 30.00 Joint Venture
FINO Paytech Ltd 20.75 Associates
Goa Natural Gas Pvt Ltd 50.00 Joint Venture
GSPL India Gasnet Ltd 11.00 Associates
GSPL India Transco Ltd 11.00 Associates
Haridwar Natural Gas Pvt Ltd 50.00 Joint Venture
IBV (Brasil) Petroleo Ltda. 50.00 Joint Venture
Indraprastha Gas Ltd 22.50 Associates
JSC Vankorneft 7.89 Associates
Kannur International Airport Ltd 21.68 Associates
Kochi Salem Pipeline Pvt Ltd 50.00 Joint Venture
LLC TYNGD 9.87 Associates
Maharashtra Natural Gas Ltd 22.50 Joint Venture
Matrix Bharat Pte. Ltd 50.00 Joint Venture
Mozambique LNG 1 Pte. Ltd 10.00 Associates
Mumbai Aviation Fuel Farm Facility Pvt Ltd 25.00 Joint Venture
Numaligarh Refinery Ltd 61.65 Subsidiary
Petroleum India International 18.18 Associates
Petronet CI Ltd 11.00 Associates
Petronet India Ltd 16.00 Associates
Petronet LNG Ltd 12.50 Associates
Ratnagiri Refinery & Petrochemicals Ltd 25.00 Joint Venture
Sabarmati Gas Ltd 49.94 Joint Venture
Taas India Pte Ltd 33.00 Joint Venture
Vankor India Pte Ltd 33.00 Joint Venture
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Commercial Paper  ST  4500.00  CRISIL A1+  05-11-19  CRISIL A1+  08-10-18  CRISIL A1+    --    --  -- 
        25-02-19  CRISIL A1+  27-07-18  CRISIL A1+           
Non Convertible Debentures  LT  3300.00
CRISIL AAA/(Watch) Developing  05-11-19  CRISIL AAA/Stable  08-10-18  CRISIL AAA/Stable  10-04-17  CRISIL AAA/Stable  15-04-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
        25-02-19  CRISIL AAA/Stable  27-07-18  CRISIL AAA/Stable  20-02-17  CRISIL AAA/Stable       
            27-04-18  CRISIL AAA/Stable           
Short Term Debt  ST  15000.00  CRISIL A1+  05-11-19  CRISIL A1+  08-10-18  CRISIL A1+  10-04-17  CRISIL A1+  15-04-16  CRISIL A1+  CRISIL A1+ 
        25-02-19  CRISIL A1+  27-07-18  CRISIL A1+  20-02-17  CRISIL A1+       
            27-04-18  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  49939.00  CRISIL AAA/(Watch) Developing  05-11-19  CRISIL AAA/Stable  08-10-18  CRISIL AAA/Stable  10-04-17  CRISIL AAA/Stable  15-04-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
        25-02-19  CRISIL AAA/Stable  27-07-18  CRISIL AAA/Stable  20-02-17  CRISIL AAA/Stable       
            27-04-18  CRISIL AAA/Stable           
Non Fund-based Bank Facilities  LT/ST  18404.50  CRISIL A1+  05-11-19  CRISIL A1+  08-10-18  CRISIL A1+  10-04-17  CRISIL A1+  15-04-16  CRISIL A1+  CRISIL A1+ 
        25-02-19  CRISIL A1+  27-07-18  CRISIL A1+  20-02-17  CRISIL A1+       
            27-04-18  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/Watch Developing Fund-Based Facilities* 22855 CRISIL AAA/Stable
Fund-Based Facilities# 9912.5 CRISIL AAA/Watch Developing 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/Watch Developing Proposed Fund-Based Bank Limits 610 CRISIL AAA/Stable
Proposed Fund-Based Bank Limits$ 16561.5 CRISIL AAA/Watch Developing 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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