Rating Rationale
April 27, 2018 | Mumbai
Indian Oil Corporation Limited
Ratings Reaffirmed
Rating Action
Total Bank Loan Facilities Rated Rs.80800 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
Rs.5000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its ratings on the bank facilities and debt instruments of Indian Oil Corporation Ltd (IOCL) at 'CRISIL AAA/Stable/CRISIL A1+'. The ratings continue to reflect the strategic importance to, and expectation of continued support from, the Government of India (GoI). The ratings also factor in a dominant position in the oil refining and marketing sector, and strong operating efficiency. These strengths are partially offset by exposure to project implementation risks, and a moderate financial risk profile.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of IOCL and all its subsidiaries and joint ventures (JVs); the subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. CRISIL believes these entities are strategically important for IOCL's business risk profile and have considerable operational integration with IOCL. Furthermore, the ratings factor in government support.

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, oil marketing companies (OMCs) dominate the domestic markets for key petroleum products, such as motor sprits, high-speed diesel, superior kerosene oil (SKO), and liquefied petroleum gas (LPG). Unhindered supply of these products in the domestic market is contingent 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. Any diminution in the strategic importance, or in GoI's management control will remain a key rating sensitivity factor.
GoI has also supported the 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, the under-recoveries of OMCs have declined significantly. The government is likely to continue to support IOCL by absorbing a large portion of its sales-related under-recoveries, if any. Any change in the adequacy and timeliness of GoI support will constitute a key rating sensitivity factor.
* Dominant position in the oil refining and marketing sector
IOCL dominates the oil refining and marketing sector, with 11 refineries, and shares of about 33% and 45%, of India's refining capacity and petroleum market, respectively, as on December 31, 2017. The market position is underpinned by the entrenched marketing and distribution infrastructure, with around 46,500 touch points, and by aggressive branding and marketing exercises undertaken. These initiatives should help maintain the dominant share in the domestic petroleum market.
* Strong operating efficiency
This is backed by large integrated operations, geographically distributed refining capacity, and high capacity utilisation (about 105% in fiscal 2017). Throughput of crude at the refineries increased to 65 million tonne in fiscal 2017, from 57 million tonne in fiscal 2016. The operating margin improved to 10.0% in fiscal 2017 from 6.6% the previous fiscal as gross refining margin (GRM) increased to USD 7.7 per barrel (bbl) from USD 5.1 per bbl. Commissioning and ramp-up of the 15 million-tonne-per-annum (mtpa) refinery project, and the petrochemical complex in Paradip, Odisha, should further enhance the diversity and integration benefits.
* Moderate financial risk profile
Adjusted gearing was 0.64 time as on March 31, 2017, and the net cash accrual to total debt ratio was 23% in fiscal 2017.
* Exposure to project implementation risks, given the large investment plans
Projects in the pipeline include setting up a polypropylene unit, upgrading existing refineries for delivering BS-VI compliant fuels, setting up a 5 mtpa LNG import terminal at Ennore, Tamil Nadu (through a JV), modernising and augmenting pipeline infrastructure, and investing in exploration and production at an expected investment of about Rs 20,000 crore per annum. Despite the company's experience in expanding and modernising refineries and pipeline infrastructure, CRISIL will continue to monitor project costs and timelines, and stabilisation of operations on completion.
* Limited pricing flexibility for SKO and LPG
The company is also 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 will 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.
Outlook: Stable

CRISIL believes IOCL will continue to benefit over the medium term from continued government support owing to its strategic and economic importance, and criticality of the sector to GoI.
Downward scenario
* Significant increase in sales-related under-recoveries on account of any adverse movement in crude oil price and foreign exchange rates, with inadequate pass through in retail price or compensation from GoI.

About the Company

IOCL, a GoI undertaking, was formed in 1964 with the merger of Indian Refineries Ltd (established in 1958) and Indian Oil Company Ltd (established in 1959). IOCL is an integrated oil refining and marketing company. Along with subsidiary Chennai Petroleum Corporation Ltd (CPCL; rated 'CRISIL AAA/Stable/CRISIL A1+'), IOCL controls 11 refineries across India, which have a combined installed capacity of 80.7 mtpa, and account for 33% of the country's total installed capacity.

Key Financial Indicators
Particulars Unit 2017^ 2016
Revenue Rs. Cr. 354860 359444
Profit After Tax Rs. Cr. 20369 11502
Profit Margin % 5.7 3.2
Adjusted Debt/Adjusted Net worth Times 0.64 0.85
Interest coverage Times 9.10 6.50
*Above numbers reflects 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
Date of
Coupon Rate (%) Maturity
Issue Size
(Rs. Cr)
Rating Assigned
with Outlook
NA Non Convertible Debentures^ NA NA NA 5000 CRISIL AAA/Stable
NA Fund-Based Facilities* NA NA NA 26300 CRISIL AAA/Stable
NA Non-Fund-Based Limit* NA NA NA 19500 CRISIL A1+
NA Proposed Non-Fund-Based Limits NA NA NA 7000 CRISIL A1+
NA Proposed Short-Term Bank Loan Facility NA NA NA 28000 CRISIL A1+
^Yet to be issued    
*Fund-based and non-fund-based facilities are fully interchangeable
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  0.00
CRISIL AAA/Stable      30-11-17  CRISIL AAA/Stable  22-11-16  CRISIL AAA/Stable  16-10-15  CRISIL AAA/Stable  CRISIL AAA/Stable 
Fund-based Bank Facilities  LT/ST  54300.00  CRISIL AAA/Stable/ CRISIL A1+      30-11-17  CRISIL AAA/Stable/ CRISIL A1+  22-11-16  CRISIL AAA/Stable/ CRISIL A1+  16-10-15  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
Non Fund-based Bank Facilities  LT/ST  26500.00  CRISIL A1+      30-11-17  CRISIL A1+  22-11-16  CRISIL A1+  16-10-15  CRISIL A1+  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* 26300 CRISIL AAA/Stable Fund-Based Facilities* 26300 CRISIL AAA/Stable
Non-Fund Based Limit* 19500 CRISIL A1+ Non-Fund Based Limit* 19500 CRISIL A1+
Proposed Non Fund based limits 7000 CRISIL A1+ Proposed Non Fund based limits 7000 CRISIL A1+
Proposed Short Term Bank Loan Facility 28000 CRISIL A1+ Proposed Short Term Bank Loan Facility 28000 CRISIL A1+
Total 80800 -- Total 80800 --
*Fund-based and non-fund-based facilities are fully interchangeable
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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