| Hindustan Petroleum Corporation Limited | ||||||||||||||
| Rated amount enhanced | ||||||||||||||
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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/FAAA/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of Hindustan Petroleum Corporation Limited (HPCL).
HPCL remains strategically important to the Government of India (GoI), given the role it plays in India’s economic development. The ratings, therefore, continue to reflect HPCL’s strategic importance and expectation of continued support from GoI and parent Oil and Natural Gas Corporation (ONGC). The ratings also factor in the company’s established market position in the oil refining and marketing sector. These strengths are partially offset by exposure to project implementation risks, average financial risk profile, and limited pricing flexibility for superior kerosene oil (SKO) and liquefied petroleum gas (LPG).
Petroleum product sales have grown by 45% on a y-o-y basis during the first nine months of fiscal 2022, as performance of the past fiscal was mainly impacted by the Covid induced lockdown restrictions placed. Operating margins normalized to 3.20% during the first nine months of fiscal 2022 from 6.76% in the corresponding period of the previous fiscal, with revival in crude oil prices. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of HPCL and its subsidiaries and joint ventures (JVs). The subsidiaries have been fully consolidated, while the JVs have been proportionately consolidated. The subsidiaries and JVs are strategically important to HPCL as they reduce dependence on other refiners to source products for retail operations. Furthermore, the ratings factor in support received from the government, with managerial control and majority ownership through ONGC, a public sector undertaking of GoI.
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:
Oil refining and marketing is strategic for India’s economic development. Currently, OMCs dominate the Indian market for key petroleum products, such as motor sprits, high-speed diesel, SKO and LPG. Unhindered supply of these products in the domestic market is contingent on the smooth functioning of OMCs, such as HPCL. The company would, therefore, remain strategically important to GoI, and continue to play a key role in implementing the government’s socio-economic policies.
GoI supports OMCs through budgeted subsidies and discounts from upstream companies, minimising their sales-related under-recovery burden. On account of de-regulation of diesel, favourable crude prices and reduced consumption of subsidised LPG, under-recoveries of OMCs have declined significantly. The government will continue to support HPCL by absorbing a large portion of the latter’s sales-related under-recoveries, if any. Any change in the adequacy and timeliness of support from GoI will remain a key monitorable over the medium term.
HPCL has a refining capacity share of 10.8%, and owns 21% of India’s petroleum product pipelines. The coastal location of the refineries provides logistical advantages for the import of crude oil and export of petroleum products. Both refineries, Mumbai and Vishakhapatnam, have maintained healthy energy consumption levels. Market position is underpinned by an entrenched marketing and distribution infrastructure, with 18,634 retail outlets. The company had a network of 6,192 LPG distributors as on September 2021. Furthermore, aggressive branding and marketing exercises have been undertaken to expand the retail network. These initiatives should help maintain the strong brand position in the Indian petroleum market.
Weaknesses:
Consolidated gearing was 1.20 times as on March 31, 2021, on account of higher capital requirements. Improvement in cash accruals is expected to maintain the gearing at around 1.0 time as on March 31, 2022, despite continued capex undertaken. Rise in profitability in fiscal 2021 and nine months of fiscal 2022 has led to improvement in debt protection metrics. This is reflected in interest coverage ratio of 19.5 times for fiscal 2021 and 12.1 for nine months of fiscal 2022, as against 5.2 times for the fiscal 2020. Going forward, degree of reliance on debt to meet capital expenditure (capex) needs for the company will remain a key monitorable.
The company is undertaking several projects, including modernisation and capacity expansion at the Mumbai and Visakhapatnam refineries, setting up a greenfield refinery in Barmer, Rajasthan, modernisation and augmentation of the pipeline infrastructure, and expansion in the natural gas sector. HPCL's experience in implementing and operating large projects should hold the company in good stead. Nevertheless, project cost and timelines, and stabilisation of operations after completion will continue to be key monitorables.
The company has under-recoveries on account of controlled prices of SKO and LPG in the domestic market. 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-regularisation of the price of diesel (which was a major contributor to under-recoveries) and the implementation of the Direct Benefit Transfer scheme (DBT; or Pratyaksha Hastaantarit Laabh [PAHAL]) for LPG. In addition, there has been a sharp decline in kerosene consumption on account of increased LPG penetration. These initiatives should help streamline the mechanism for meeting under-recoveries. However, timely receipt of subsidies and a well-defined institutionalised mechanism will be necessary for sustaining the financial health of the sector in the long term. |
Liquidity: Superior HPCL, a Maharatna company, has strong financial flexibility, driven by support from the GoI. The company's portfolio of oil bonds, large unutilised bank limit, and access to low-cost funds from both domestic and overseas markets can help raise resources when needed. Capital expenditure of Rs 14,000 crore in fiscal 2023 is likely to be met through internal accrual and external borrowings. As on September 30, 2021 the company has GOI bonds of ~ Rs 5459 crore as liquid investments. |
Outlook: Stable CRISIL Ratings believes HPCL will continue to benefit from its established market position in the oil refining and marketing sector, and support from the GoI owing to its strategic and economic importance. |
Rating Sensitivity factors Downward factors
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About the Company HPCL was established in 1974 following the nationalisation and amalgamation of Esso Eastern Inc and Lubes India Ltd with the takeover of Caltex Oil Refining (India) Ltd. In January 2018, ONGC acquired 51.11% stake in HPCL from GoI.
HPCL is an integrated refining and marketing company. It has substantial oil marketing operations, and is the third-largest oil refining and marketing company in India. It operates a refinery in Mumbai, which has installed capacity of 7.5 MTPA, and a refinery in Visakhapatnam with installed capacity of 8.3 MTPA; these refineries account for 6.3% of the country’s total installed capacity. The company had undertaken capacity expansion by 2 MTPA at its Mumbai refinery which was completed in fiscal 2022, while capacity expansion by 6.7 MTPA at its Visakh refiner is expected to be completed by fiscal 2023.
The company also has an 11.3 MTPA refinery in Bathinda, Punjab, through a JV with Singapore-based Mittal Energy Investments Pvt Ltd. HPCL is setting up a grass-root greenfield refinery-cum-petrochemical complex, with capacity of 9 MTPA in Barmer through HPCL Rajasthan Refinery Ltd ('CRISIL AA/Stable'), a JV with the Government of Rajasthan. HPCL has a wide distribution and marketing infrastructure network, including a network of cross-country pipelines, terminals, depots and 18,634 retail outlets.
For the first nine months ended December 31, 2021, HPCL reported profit after tax (PAT) of Rs 5275 crore on revenues of Rs 252,278 crore as against PAT of Rs 7,603 crore on revenue of Rs 158,343 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators*:
*Numbers reflect analytical adjustments made by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Yet to be issued *Revolving line of credit denominated in foreign currency. USD 1 = Rs 75/- # Current outstanding as on 28th April, 2022 is Rs. 1625 crore ^ Current outstanding as on 28th April, 2022 is Rs. 375 crore |
Annexure – List of entities consolidated
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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*Revolving line of credit denominated in foreign currency. USD 1 = Rs 75/-
** USD 300 million external commercial borrowings converted at USD 1 = Rs 77/-
# Current outstanding as on 28th April, 2022 is Rs. 1625 crore
^ Current outstanding as on 28th April, 2022 is Rs. 375 crore
This Annexure has been updated on 30-Apr-22 in line with the lender-wise facility details as on 13-Aug-21 received from the rated entity.
Criteria Details
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