Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank facilities and non-convertible debentures (NCDs) of Indian Oil Corporation Limited (IOCL). The rating on the non-convertible debentures of Rs 2,000 crore has been withdrawn (see 'Annexure - Details of Rating Withdrawn' for details). The rating withdrawal is in line with the policy of CRISIL Ratings.

 

The ratings continue to reflect the dominant position of IOCL in the oil refining and marketing sector in India and its strong operating efficiency. The ratings also factor in the company's strategic importance to the Government of India (GoI) and expectation of continued support from it. These strengths are partially offset by exposure to project implementation risk and inherent volatility in operating profitability owing to fluctuations in input prices.

 

Operating performance of IOCL improved sharply in first nine months of fiscal 2024 with improvement in operating margin to ~9.6% on the back of lower crude oil procurement price and no corresponding change in the price of key petroleum products – diesel and motor spirit resulting in healthy marketing margins. Operating margin remained low at 3.7% in fiscal 2023 due to a significant rise seen in crude oil prices, which could not be passed on to the customers; leading to the marketing margin taking a hit. This is in spite of sharp improvement in the gross refining margins (GRM) in fiscal 2023 to $19.5 per barrel (bbl) with improvement in product spreads, uptake in demand and rising crude oil prices. GRM continued to remain healthy at $13.3 per bbl in first nine months of fiscal 2024.

 

Financial risk profile improved in first half of fiscal 2024 with healthy accretion to net worth and lower debt levels given healthy operating cashflows; gearing stood at 0.7 time as on September 30, 2023 and is likely to remain less than 1 time going forward.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of IOCL and its subsidiaries and joint ventures (JVs); the subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. These entities are strategically important to, and have considerable operational linkages with, IOCL. The ratings also factor in government support.

 

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:

• Strategic importance to, and continued support from, GoI

Oil refining and marketing is strategically important for India's economic development. Oil marketing companies (OMCs) dominate the domestic market for key petroleum products, such as motor spirits, high-speed diesel, superior kerosene oil and liquefied petroleum gas (LPG). Unhindered supply of these products in the domestic market depends on the smooth operations of OMCs such as IOCL. 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 also holds 51.5% stake in IOCL and exerts management control. Any diminution in the company's strategic importance or in the GoI’s shareholding will remain key monitorables.

 

• Dominant position in the oil refining and marketing sector

IOCL dominates the oil refining and marketing sector. With 11 refineries, the company accounted for 32% of the refining capacity of India as on December 31, 2023 and held around 42% share in the petroleum products market in fiscal 2023. Large, integrated operations, geographically diversified refining capacities and high utilisation enhance operational efficiency. The company’s market position is underpinned by its entrenched marketing and distribution infrastructure, with 36,285 retail outlets and 12,859 LPG distributors as on March 31, 2023, along with aggressive branding and marketing exercises. These initiatives should help IOCL maintain a dominant share in the domestic petroleum market.

 

Weaknesses:

• Moderate financial risk profile for the rating category

With sharp decline in debt to Rs 1,15,418 crore as on September 30, 2023 due to lower working capital borrowings given improved operating performance, gearing improved to 0.7 times from 1.1 times as on March 31, 2023. Gearing is expected to remain at less than 1 time going forward as well. Capital expenditure (capex) plans remain sizeable at ~Rs 30,000 crore annually spread across refining, marketing, pipelines and petrochemicals segments. Degree of reliance on debt to meet the capex will remain a key monitorable.

 

• Susceptibility to volatility in crude oil prices and forex fluctuation

Crude oil prices have been volatile over the past few years. Prices of crude oil for Indian basket fell sharply to a low of around $20 per barrel (bbl) in April 2020 before rising sharply to over $110 per bbl in March 2022; average procurement price stood at around $93 in fiscal 2023 and around $82 per bbl in year-to-date fiscal 2024. Average inventory of crude oil and finished goods of around 70-80 days make the operating performance of IOCL vulnerable to fluctuations in valuations of inventory stock. IOCL imports 80-85% of its crude oil requirement and, thus, remains susceptible to volatility in the rupee-dollar exchange rate and a corresponding increase in the value of imports. IOCL compensates these volatilities through the marketing margin, and the company’s ability to continue to do so will remain a key monitorable.

Liquidity: Superior

IOCL, a Maharatna company, enjoys strong financial flexibility, driven by support from GoI. The company's portfolio of oil bonds, large unutilised bank limits and access to low-cost funds from domestic and overseas markets can help raise resources when needed. Amongst, the total fund-based limits of Rs 89,753 crore, utilisation has averaged to around 50% in the past 12 months.

 

Healthy cash accruals and available liquidity should be sufficient to meet scheduled debt repayment obligations of Rs 15,440 crore in fiscal 2024 and ~Rs 19,000 crore in fiscal 2025. IOCL’s annual capex plans of around Rs 30,000 crore is expected be funded through a mix of operational cash flow and external borrowings. Working capital limits remain moderately utilised at ~50% for past 12 months ended December 2023.

 

Environment, social and governance (ESG) profile

CRISIL Ratings believes IOCL’s ESG profile supports its strong credit risk profile.

The Oil and Gas sector has a moderate environmental and social impact, primarily driven by its raw material sourcing strategies, waste intensive process, and its direct impact on the health of the environment.

 

Key ESG highlights:

• IOCL undertook massive investments to deliver BS-VI standard fuels across the country.
• The company is working to deliver 20% ethanol-blended fuel by 2025. Company’s 2G ethanol plant (100 KLPD) at Panipat was dedicated to Nation by the Honourable Prime Minister of India on 10th August 2022. The Company is also setting up 3G ethanol plant (128 KLPD) at Panipat.
• IOCL has renewable energy (RE) portfolio of 239 MW as of March 2023. It has also solarized total of 20,992 retail outlets as of March 2023 with a cumulative capacity of ~123.4 MW and is targeting to increase its RE portfolio significantly towards meeting net zero commitments and as a business diversification effort.
• It has set up 5,461 EV charging stations & 76 battery swapping stations at retail outlets across the country as of March 2023 and has plan of setting up 10,000 EV Charging Stations in foreseeable future.
• In water management, the company has been able to achieve nearly 90% waste-water recycling at its refineries, striving for zero liquid discharge at installations. It has also set up rainwater harvesting projects covering over 2,900 hectare area across its installations.
• The company has a good track record of customer grievance redressal. Gender diversity remained in line with industry peers with women employees forming ~9% of the total workforce in fiscal 2023. However, the resolution rate for sexual harassment cases remained lower than industry peers.
• Its governance structure is characterized by ~50% of its board comprising independent directors, healthy investor grievance redressal and extensive disclosures.

There is growing importance of ESG among investors and lenders. IOCL’s continued commitment to ESG principles will play a key role in enhancing stakeholder confidence and ensure ease of raising capital from markets where ESG compliance is a key factor..

Outlook: Stable

IOCL will continue to benefit from its leadership position in the domestic oil refining and marketing segment and its strategic importance to the GOI.

Rating Sensitivity factors

Downward factors

• Higher-than-expected and sustained deterioration in IOCL’s performance
• Change in GoI’s support philosophy or reduction in stake below 51%

About the Company

IOCL, a GoI undertaking, was formed in 1964 with the merger of Indian Refineries Ltd (incorporated in 1958) and Indian Oil Company Ltd (incorporated in 1959). IOCL is an integrated oil refining and marketing company. Along with its subsidiary, Chennai Petroleum Corporation Ltd ('CRISIL AAA/Stable/CRISIL A1+'), IOCL controls 11 refineries across India, with a combined capacity of 80.6 million tonne per annum, which accounts for 32% of the country's total capacity. As on December 31, 2023, GoI held 51.5% stake, ONGC held 14.2%, insurance companies held 7.91% and balance was held by public and others.

 

IOCL through a JV is also setting up a 9-mmtpa refinery at Cauvery Basin, Nagapattinam, at an estimated project cost of Rs 31,580 crores. 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.

 

For the nine-month ended December 31, 2023, IOCL reported profit after tax (PAT) of Rs 37,673 crore on revenues of Rs 657,585 crore as against PAT of Rs 863 crore on revenue of Rs720,698 crore for the corresponding period of the previous fiscal.

Key Financial Indicators )*

Particulars	Unit	2023	2022
Revenue	Rs crore	860,317	602,179
Profit after tax (PAT)	Rs crore	11,468	25,523
PAT margin	%	1.3	4.2
Adjusted debt/adjusted networth	Times	1.1	1.0
Adjusted interest coverage	Times	4.6	9.6

*Above numbers reflect analytical adjustments made by CRISIL Ratings

Any other information: Not applicable

Annexure - Details of Instrument(s)

ISIN	Name of instrument	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs crore)	Complexity levels	Rating assigned with outlook
INE242A08437	Non-convertible debentures	22-Oct-2019	7.41	22-Oct-2029	3,000	Simple	CRISIL AAA/Stable
INE242A08452	Non-convertible debentures	6-Mar-2020	6.39	6-Mar-2025	2,995	Simple	CRISIL AAA/Stable
INE242A08478	Non-convertible debentures	3-Aug-2020	5.4	11-Apr-2025	1,625	Simple	CRISIL AAA/Stable
INE242A08486	Non-convertible debentures	20-Oct-2020	5.5	20-Oct-2025	2,000	Complex	CRISIL AAA/Stable
INE242A08494	Non-convertible debentures	25-Jan-2021	5.6	23-Jan-2026	1,290.2	Simple	CRISIL AAA/Stable
INE242A08502	Non-convertible debentures	18-Feb-2022	6.14	18-Feb-2027	1,500	Simple	CRISIL AAA/Stable
INE242A08510	Non-convertible debentures	21-Apr-2022	5.84	19-Apr-2024	2,500	Simple	CRISIL AAA/Stable
INE242A08528	Non-convertible debentures	17-Jun-2022	7.79	12-Apr-2032	2,500	Simple	CRISIL AAA/Stable
INE242A08536	Non-convertible debentures	6-Sep-2022	7.14	6-Sep-2027	2,500	Simple	CRISIL AAA/Stable
INE242A08544	Non-convertible debentures	25-Nov-2022	7.44	25-Nov-2027	2,500	Simple	CRISIL AAA/Stable
NA	Term loan(i)	NA	NA	Jun-2024	820	NA	CRISIL AAA/Stable
NA	Term loan	NA	NA	36 months^	8,000	NA	CRISIL AAA/Stable
NA	Term loan	NA	NA	35 months^	1,000	NA	CRISIL AAA/Stable
NA	Term loan	NA	NA	Sep-2029	750	NA	CRISIL AAA/Stable
NA	Term loan	NA	NA	Sep-2029	1,500	NA	CRISIL AAA/Stable
NA	Fund-based facilities*	NA	NA	NA	19,500	NA	CRISIL AAA/Stable
NA	Fund-based facilities@	NA	NA	NA	6,300	NA	CRISIL AAA/Stable
NA	Proposed Long Term Bank Facility	NA	NA	NA	29,262	NA	CRISIL AAA/Stable
NA	Proposed Short Term Bank Facility	NA	NA	NA	8,180	NA	CRISIL A1+
NA	Non-fund-based limit*	NA	NA	NA	13,500	NA	CRISIL A1+
NA	Non-fund-based limit@	NA	NA	NA	1,200	NA	CRISIL A1+
NA	Non-fund-based limit	NA	NA	NA	900	NA	CRISIL A1+
NA	Short Term Bank Loan	NA	NA	NA	12,500	NA	CRISIL A1+
NA	External Commercial Borrowings(i)	NA	NA	NA	820	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(ii)	NA	NA	NA	2,460	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(iii)	NA	NA	NA	1,640	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(iv)	NA	NA	NA	2,214	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(v)	NA	NA	NA	1,271	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(vi)	NA	NA	NA	533	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(vii)	NA	NA	NA	9,020	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(viii)	NA	NA	NA	2,050	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(ix)	NA	NA	NA	4,100	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(x)	NA	NA	NA	820	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(xi)	NA	NA	NA	1,025	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(x)	NA	NA	NA	820	NA	CRISIL AAA/Stable
NA	External Commercial Borrowings(xii)	NA	NA	NA	615	NA	CRISIL AAA/Stable
NA	Non-convertible debentures**	NA	NA	NA	5	Simple	CRISIL AAA/Stable
NA	Non-convertible debentures**	NA	NA	NA	2,500	Simple	CRISIL AAA/Stable

**yet to be issued

* Interchangeability allowed from FBWC to NFBWC upto Rs.15000 crores and interchangeability allowed from NFBWC to FBWC upto Rs.11500 crores             

@ One way Interchangeability allowed from Fund Based to Non Fund Based. 

^ From the date of disbursement of respective tranche 

(i) USD 100 Mn @ USD/INR rate of 82.00 

(ii) USD 300 Mn @ USD/INR rate of 82.00 

(iii) USD 200 Mn @ USD/INR rate of 82.00 

(iv) USD 270 Mn @ USD/INR rate of 82.00 

(v) USD 155 Mn @ USD/INR rate of 82.00 

(vi) USD 65 Mn @ USD/INR rate of 82.00 

(vii) USD 1100 Mn @ USD/INR rate of 82.00 

(viii) USD 250 Mn @ USD/INR rate of 82.00 

(ix) USD 500 Mn @ USD/INR rate of 82.00 

(x) USD 100 Mn @ USD/INR rate of 82.00 

(xi) USD 125 Mn @ USD/INR rate of 82.00  

(xii) USD 75 Mn @ USD/INR rate of 82.00

 

Annexure – Rating Withdrawn

ISIN	Name of instruments	Date of allotment	Coupon rate (%)	Maturity date	Issue size (Rs.Crore)	Complexity level	Rating assigned with outlook
INE242A08445	Non-convertible debentures	14-Jan-2020	6.44	14-Apr-2023	2,000	Simple	Withdrawn

 

Annexure – List of entities consolidated

 

Name of the company	%	Consolidation	Rationale for consolidation
Chennai Petroleum Corporation Ltd	51.89	Subsidiary	The subsidiaries of IOCL have been fully consolidated, and the JVs have been proportionately consolidated. These entities are strategically important to the business risk profile of IOCL and have considerable operational integration with it.
Indian Oil (Mauritius Ltd)	100	Subsidiary
Lanka IOC PLC	75.12	Subsidiary
IOC Middle East FZE	100	Subsidiary
IOC Sweeden AB	100	Subsidiary
IOCL (USA) INC	100	Subsidiary
IndOil Global BV	100	Subsidiary
IOCL Singapore PTE	100	Subsidiary
IndianOil Adani Ventures Ltd (Formerly known as Indian Oiltanking Ltd)	49.38	Joint venture
Lubrizol India Pvt. Ltd	26	Joint venture
IndianOil Petronas Pvt. Ltd	50	Joint venture
Green Gas Ltd.	49.98	Joint venture
IndianOil SkyTanking Pvt Ltd.	50	Joint venture
Suntera Nigeria 205 Ltd.	25	Joint venture
Delhi Aviation Fuel Facilty Pvt Ltd	37	Joint venture
Indian Synthetic Rubber Limited	50	Joint venture
NPCIL- IndianOil Nuclear Energy Corporation Limited	26	Joint venture
GSPL India Transco Ltd	26	Joint venture
GSPL India Gasnet Ltd	26	Joint venture
Indian Oil Adani Gas Pvt. Ltd.	50	Joint venture
Mumbai Aviation Fuel Farm Facility Pvt. Ltd.	25	Joint venture
Kochi Salem Pipelines Pvt. Ltd.	50	Joint venture
IndianOil LNG Pvt Ltd.	45	Joint venture
Hindustan Urvark & Rasayan Ltd.	29.67	Joint venture
Ratnagiri Refinery & Petrochemicals Ltd.	50	Joint venture
Indradhanus Gas Grid Limited	20	Joint venture
IHB Limited	50	Joint venture
IndianOil Total Private Limited	50	Joint venture
IOC Phinergy Pvt Ltd.	50	Joint venture
Paradeep Plastic Park Limited	49	Joint venture
Avi-Oil India Pvt.Ltd	25	Associate
Petronet VK Ltd.	50	Associate
Petronet LNG Ltd.	12.5	Associate
Petronet India Ltd.	18	Associate

as of March 31, 2023