| Chennai Petroleum Corporation Limited | ||||||||
| Ratings Reaffirmed; rated amount enhanced for Bank Debt | ||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and debt instruments of Chennai Petroleum Corporation Limited (CPCL).
The rating on Rs. 1145 crore of NCDs has been withdrawn, basis receipt of redemption confirmation. The withdrawal is in line with CRISIL Ratings’ policy on withdrawal of ratings.
The ratings continue to derive comfort from the strong operational, managerial, and financial support CPCL receives from its parent Indian Oil Corporation Limited (IOCL, rated ‘CRISIL AAA/Stable/CRISIL A1+’), wherein the company continues to be strategically important to its parent.
Operating performance has remained comfortable in fiscal 2022 and during the first nine months of fiscal 2023, mainly benefited by healthy GRMs and a comfortable physical performance. Overall GRMs improved to $8.85/bbl. in fiscal 2022 as compared to $7.68/bbl. in the year previous. Further improvement was seen in the first nine months of fiscal 2023, with GRMs improving to $11.70 /bbl. This has led to improvement in overall financial risk profile, with gearing expected to remain under 1.5 times as on March 31, 2023 against the gearing of 3.36 times as on March 31, 2022. |
Analytical Approach CRISIL Ratings has centrally factored in the strong business and financial linkages with its parent, IOCL. IOCL had infused Rs 1,000 crore in fiscal 2016 through subscription of non-convertible, cumulative and redeemable preference shares to support the capital requirement of CPCL; these shares have been treated as debt. CPCL redeemed Rs 500 crore of these shares in June 2018. |
Key Rating Drivers & Detailed Description Strengths:
CPCL is of strategic importance to IOCL as the latter has, and will continue to hold a majority stake (51.89% as on December 31, 2022) in the former. The parent has strong representation on CPCL’s board, including a common chairman. The company derives operational synergies as IOCL is also in the same business; the synergies include pooled sourcing of crude oil through IOCL, and benefits from the parent’s bulk purchase. Furthermore, IOCL buys over 90% of CPCL’s output; the company caters to the parent’s product requirement in South India. CPCL’s sales volumes are therefore not likely to be affected by the presence of any new refinery in the southern region. The company’s association with IOCL enhances financial flexibility as it is viewed at par with its parent; CPCL thus enjoys benefits related to pricing of debt facilities and favourable credit terms.
Improved operating performance has significantly benefited the balance sheet position of the company. Adjusted gearing has improved to 3.36 times as on March 31, 2022 against 6.92 times as on March 31, 2021 while interest coverage has increased to 6.67 times in fiscal 2022 from 5.82 times in fiscal 2021. Borrowings had increased to Rs 9409 crore as on March 31, 2022 from Rs 9,167 crore as on March 31, 2021 primarily to fund the working capital requirement, due to heightened volatility in the crude oil prices. However, with significant improvement in operating performance during the first nine months of fiscal 2023, borrowings have since reduced to Rs. 7472 crore as on September 30, 2022.
For the planned refinery expansion of 9 million metric tonne per annum (mmtpa) to be set up, CPCL has budgeted an investment of around Rs 2,570 crore, for a 25% equity stake in the joint venture. For the said investment, the company has already invested Rs 619 crore as on March 31, 2022. Even on factoring in the remaining investment, the financial risk profile should remain comfortable, with adjusted gearing at below 2 times.
Weaknesses:
Crude oil prices have been volatile over the past few years. Prices fell sharply to around $ 20 per bbl towards the end of March 2020, but subsequently recovered to pre-pandemic levels, averaging $ 64 per bbl. by the end of fiscal 2021. The geopolitical tensions have, once again, increased crude oil prices to above $ 100/bbl. during first quarter of current fiscal which has normalized to around $ 85/bbl. during third quarter of current fiscal 2023. Average inventory of crude oil and finished goods of around 40 days makes CPCL's operating performance vulnerable to fluctuations in valuations of inventory stock. CPCL currently imports most of its crude oil requirement from the Middle East.
Being a standalone refinery, CPCL’s operating performance has a high earnings sensitivity to GRMs. CPCL’s overall GRMs have remained moderate in the range of $5-6/bbl. over the past years. The recent improvement in operating performance during the second half of fiscal 2022 and the first nine months of fiscal 2023 was mainly driven by the spike seen in core GRMs, impacted by the ongoing geopolitical events. Margins could however reverse back to their median performance levels going forward, with an easing of these geopolitical events. |
Liquidity: Superior Financial flexibility remains healthy, backed by the strong funding support received from IOCL. On an average, CPCL has been earning annual cash accruals of around Rs 1000 crore. Debt repayments of around Rs 1,145 crore in fiscal 2023 has already been paid. Debt repayment of Rs. 550 crore is due in fiscal 2024. Furthermore, on an average there has been a minimal utilisation of the fund-based limits, over the past one year. |
Outlook: Stable The ‘Stable’ outlook reflects CRISIL Rating’s outlook on CPCL’s parent. The company’s status as a subsidiary of IOCL enhances its competitive position in the domestic market. IOCL extends financial and management support to CPCL and provides assured offtake for around 90% of the latter’s finished products |
Rating Sensitivity factors Downward factors
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About the Company CPCL was incorporated as Madras Refineries Ltd in 1965, a JV between the Government of India, National Iranian Oil Co (NIOC) and American Oil Co (a wholly owned subsidiary of USA-based Standard Oil Co). In March 2001, IOCL acquired the government’s equity stake for Rs 510 crore, and NIOC transferred its stake to its affiliate, Naftiran Intertrade Co Ltd (NICL), in July 2003. Currently, IOCL holds 51.89% stake in CPCL while NICL holds 15.40%; the remainder is held by financial institutions, corporate bodies, the general public and others.
Currently, CPCL has a refining capacity of 10.5 mmtpa at Manali. The company produces petroleum products, lubricants, and additives. CPCL also provides high-quality feedstock such as propylene, superior kerosene, butylenes, naphtha, paraffin wax, and sulphur to other industries.
CPCL, through a JV, is setting up a 9-mmtpa refinery at Cauvery Basin, Nagapattinam, at an estimated project cost of Rs 31,580 crores. Both CPCL and IOCL’s board have approved the expansion plans. JV is being formed, wherein IOCL and CPCL will together hold a 50% stake (i.e. 25% each in the JV), while the remaining 50% is to be held by other seed investors. CPCL’s investment in this project would be limited to its equity investment of around Rs. 2570 crore.
CPCL has a high nelson complexity index (NCI) of 10.03 (refineries with high NCI have the necessary flexibility to process a variety of crude oils and can record high value addition).
For the nine months ended December 31, 2022, CPCL reported profit after tax (PAT) of Rs 2,530 crore on revenues of Rs 58,726 crore as against PAT of Rs 348 crore on revenue of Rs 26,961 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
$Not yet placed *Full interchangeability with packing credit
Annexure - Details of Instrument(s) withdrawn
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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