Rating Rationale
April 30, 2019 | Mumbai
Hindustan Petroleum Corporation Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.45000 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.2000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.975 Crore Non Convertible Debentures CRISIL AAA/Stable (Withdrawn)
Fixed Deposit Programme FAAA/Stable( Reaffirmed)
Rs.15000 Crore Commercial Paper Programme CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/FAAA/Stable/CRISIL A1+' ratings on the bank facilities and debt instruments of Hindustan Petroleum Corporation Limited (HPCL). The rating on the Rs 975 crore NCDs has been withdrawn (See Annexure - Details of Rating Withdrawn) on confirmation from the debenture trustee that the NCDs have been fully redeemed. The withdrawal was in line with CRISIL's policy.
Along with other oil and marketing companies (OMCs), HPCL remains strategically important to the Government of India (GoI), given the role OMCs play in India's economic development. The ratings, therefore, continue to reflect HPCL's strategic importance to, and expectation of continued support from, GoI. The ratings also factor in an 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).

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of HPCL and its subsidiaries and joint ventures (JVs). The subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. The subsidiaries and JVs are of strategic importance to HPCL's business risk profile, 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 by, and majority ownership of, Oil and Natural Gas Corporation Ltd (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
* Strategic importance to, and continued support from, GoI
Oil refining and marketing activity is strategic for India's economic development. Currently, OMCs dominate the Indian markets 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 operations of OMCs, such as HPCL. The company should, therefore, remain strategically important to GoI, and continue to play a key role in implementing the government's socio-economic policies.
GoI has supported OMCs through budgeted subsidies and discounts from upstream companies, minimising their sales-related under-recovery burden. Post de-regulation of diesel and favourable crude prices in the past, coupled with reduced consumption of subsidised LPG, under-recoveries of OMCs have declined significantly. The government is likely to continue supporting 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 rating sensitivity factor over the medium term.
* Established position in the oil refining and marketing sector
HPCL had a refining capacity share of around 10% and market share of 23.6% of the domestic petroleum sector as on December 31, 2018. Coastal location of the company's refineries provides logistical advantages for import of crude oil and export of petroleum products. Both of its refineries, Mumbai and Vishakhapatnam, are operating at more than 100% utilisation levels and maintaining healthy energy consumption levels. Market position is underpinned by an entrenched marketing and distribution infrastructure, with 15,255 retail outlets. The company also had an LPG customer base of 6.8 crore as of November 2018. 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.
* Average financial risk profile
Consolidated gearing (0.9 time as on March 31, 2018) is expected to have weakened as on March 31, 2019, given increased reliance on debt to fund capex and under-recoveries and interim dividend outflow. Timeliness of budgetary support from GoI remains key. Operating margin fell to an estimated 4% for fiscal 2019 from 5.2% in the previous fiscal as gross refining margin (GRM) declined to USD 5 per barrel (bbl) from USD 7.4 per bbl. Key reasons for decline in GRM were declining product spreads against increasing crude oil prices, and changes in inventory value due to sharp movement in crude prices. Completion of ongoing modernisation and expansion of existing refineries should enhance profitability.
* Exposure to project implementation risks, given the large investment plans
The company is currently undertaking a number of projects, including modernisation and capacity expansion at the Mumbai and Visakhapatnam refineries, setting up of 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 monitored.
* Limited pricing flexibility for SKO and LPG
The company is exposed to 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-regularising of diesel (which was a major contributor 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. These initiatives should 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.

HPCL, a navratna company, enjoys 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 also help raise resources when needed. Annual capex of Rs 10,000 crore, is likely to be met via internal accrual and external borrowing. The company has annual long-term debt obligations of about Rs 1500 crore, expected to be funded by operational cash flows.

Outlook: Stable

CRISIL believes HPCL will continue to benefit from support expected from the government owing to the company's strategic and economic importance, and criticality of the sector to GoI.
Downside scenario
* Significant increase in sales-related under-recoveries on account of any adverse movement in crude oil prices and foreign exchange rates, with inadequate pass-through in retail price or compensation from GoI

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 an installed capacity of 7.5 million tonne per annum (mtpa), and a refinery in Visakhapatnam with installed capacity of 8.3 mtpa; these refineries account for 6.4% of the country's total installed capacity. The company also has a 11.3 mtpa refinery in Bathinda through a JV with Singapore-based Mittal Energy Investments Pvt Ltd. HPCL is also setting up a grass-root greenfield refinery-cum-petrochemical complex, with capacity of 9 mtpa, in Barmer through HPCL Rajasthan Refinery Ltd (HRRL, rated '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 15,062 retail outlets.

Key Financial Indicators*
As on / for the period ended March 31   2018 2017
Revenue (reported) Rs crore 2,45,790 2,15,673
Profit after tax (PAT) (reported) Rs crore 7,218 8,236
PAT margin  (reported) % 2.94 3.82
Adjusted debt / adjusted networth Times 0.88 1.08
Interest coverage Times 22.30 24.65
*Numbers reflect analytical adjustments made by CRISIL Ratings;

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
Date of
Coupon Rate (%) Maturity
Issue Size (Rs. Cr) Rating Assigned
with Outlook
INE094A08028 Debentures 25-Apr-19 8.00 % 25-Apr-24 500 CRISIL AAA/Stable
NA Debentures^ NA NA NA 1500 CRISIL AAA/Stable
NA Commercial Paper NA NA 7-365 days 15000 CRISIL A1+
NA Fixed Deposits NA NA NA NA FAAA/Stable
NA Cash Credit* NA NA NA 4000 CRISIL AAA/Stable
NA Fund-Based Facilities NA NA NA 24000 CRISIL AAA/Stable
NA Non-Fund-Based Limit NA NA NA 17000 CRISIL A1+
^Yet to be issued
*Fungible with bank guarantee
Annexure - Details of Rating Withdrawn
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size 
(Rs cr)
INE094A07053 Debentures 13-Mar-13 8.77% 13-Mar-18 975
Annexure - List of entities consolidated
Company Name %of shareholding Consolidation
Aavantika Gas Ltd 49.98% Joint Venture
Bhagyanagar Gas Ltd 24.99% Joint Venture
Godavari Gas Pvt Ltd 26.00% Joint Venture
GSPL India Gasnet Ltd 11.00% Associate
GSPL India Transco Ltd 11.00% Associate
Hindustan Colas Pvt Ltd 50.00% Joint Venture
HPCL Biofuels Ltd 100.00% Subsidiary
HPCL Middle East FZCO 100.00% Subsidiary
HPCL Rajasthan Refinery Ltd 74.00% Joint Venture
HPCL Shapoorji Energy Pvt Ltd 50.00% Joint Venture
HPCL-Mittal Energy Ltd 48.99% Joint Venture
Mangalore Refinery & Petrochemicals Ltd 16.96% Associate
Mumbai Aviation Fuel Farm Facility Pvt Ltd 25.00% Joint Venture
Petronet India Ltd 16.00% Joint Venture
Petronet MHB Ltd 32.72% Joint Venture
Prize Petroleum Co Ltd 100.00% Subsidiary
Ratnagiri Refinery and Petrochemicals Ltd 25.00% Joint Venture
South Asia LPG Company Pvt Ltd 50.00% 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  15000.00  CRISIL A1+      27-04-18  CRISIL A1+  24-08-17  CRISIL A1+  26-12-16  CRISIL A1+  CRISIL A1+ 
                01-08-17  CRISIL A1+  04-01-16  CRISIL A1+   
Fixed Deposits  FD  0.00  FAAA/Stable      27-04-18  FAAA/Stable  24-08-17  FAAA/Stable  26-12-16  FAAA/Stable  FAAA/Stable 
                01-08-17  FAAA/Stable  04-01-16  FAAA/Stable   
Non Convertible Debentures  LT  500.00
CRISIL AAA/Stable      27-04-18  CRISIL AAA/Stable  24-08-17  CRISIL AAA/Stable  26-12-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
                01-08-17  CRISIL AAA/Stable  04-01-16  CRISIL AAA/Stable   
Fund-based Bank Facilities  LT/ST  28000.00  CRISIL AAA/Stable      27-04-18  CRISIL AAA/Stable  24-08-17  CRISIL AAA/Stable  26-12-16  CRISIL AAA/Stable  CRISIL AAA/Stable 
                01-08-17  CRISIL AAA/Stable  04-01-16  CRISIL AAA/Stable   
Non Fund-based Bank Facilities  LT/ST  17000.00  CRISIL A1+      27-04-18  CRISIL A1+  24-08-17  CRISIL A1+  26-12-16  CRISIL A1+  CRISIL A1+ 
                01-08-17  CRISIL A1+  04-01-16  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
Cash Credit* 4000 CRISIL AAA/Stable Cash Credit* 4000 CRISIL AAA/Stable
Fund-Based Facilities 24000 CRISIL AAA/Stable Fund-Based Facilities 24000 CRISIL AAA/Stable
Non-Fund Based Limit 17000 CRISIL A1+ Non-Fund Based Limit 17000 CRISIL A1+
Total 45000 -- Total 45000 --
*Fungible with bank guarantee
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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