Rating Rationale
July 24, 2020 | Mumbai
Indian Oil Corporation Limited
'CRISIL AAA/Stable' assigned to NCD
 
Rating Action
Total Bank Loan Facilities Rated Rs.80800 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
 
Rs.2000 Crore Non Convertible Debentures CRISIL AAA/Stable (Assigned)
Rs.5000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.3000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Rs.3000 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 assigned its 'CRISIL AAA/Stable' rating to the Rs 2,000 crore non-convertible debenture (NCD) issue of Indian Oil Corporation Limited (IOCL) and reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on bank facilities and existing NCDs.
 
The ratings continue to reflect IOCL's dominant position in the oil refining and marketing sector, and its strong operating efficiency. The rating also factors in the company's strategic importance to the Government of India (GoI), and expectation of continued support from the latter. These strengths are partially offset by the modest financial risk profile, for the rating category.
 
A steep reduction in crude prices in the fourth quarter of fiscal 2020, following the Covid-19 pandemic, coupled with geopolitical factors, resulted in sizeable one-time inventory losses for all oil refining & marketing entities in India, including IOCL. The pandemic has affected demand for petroleum products, thereby constraining the margin in the refining and petrochemicals segments. Nevertheless, demand has seen an uptick ' reflected in overall hydrocarbon products' consumption in India, which stood 8% lower in June 2020 (year-on-year), as against around 45% lower YoY for April 2020.
 
IOCL's refineries operated at around 90% capacity in June 2020, while most of the facilities for petrochemicals are also operating at 100% utilisation as on date. Nevertheless, the situation related to the pandemic is evolving rapidly, and remains a monitorable.

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). IOCL's 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. 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 activity is strategic 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 (SKO), and liquefied petroleum gas (LPG). Unhindered supply of these products in the domestic market depends on 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 company's strategic importance, or in GoI's management control, will remain a key rating sensitivity factor.
 
GoI has supported OMCs through budgetary subsidies and discounts from upstream companies, minimising their sales-related under-recovery burden. Under-recoveries of OMCs have declined significantly, post de-regulation of diesel prices, and aided by favourable crude prices in the past, and reduced consumption of subsidised LPG. GoI will continue to support IOCL by absorbing a large portion of its sales-related under-recoveries, if any. Any change in adequacy and timeliness of GoI's 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, the company accounted for 32% of India's refining capacity as on March 31, 2020, and held about 43% share in India's petroleum products market in fiscal 2020. The large, integrated operations, geographically diversified refining capacities, and high utilisation enhance the operational efficiency. The market position is underpinned by IOCL's entrenched marketing and distribution infrastructure, with 29,085 retail outlets and 12,450 LPG distributors as on April 1, 2020, and aggressive branding and marketing exercises. These initiatives should help IOCL maintain its dominant share in the domestic petroleum market.
 
Weaknesses:
* Modest financial risk profile for rating category
Consolidated gearing weakened to about 1.35 times as on March 31, 2020, from about 0.9 time as on March 31, 2019, given the increased reliance on debt to fund capex and losses in fiscal 2020. Timeliness of budgetary support from GoI remains key. Loss in fiscal 2020, also led to moderation in debt protection metrics, which are weaker for the company's rating category. This is reflected in interest cover of 2.5 times in FY20 as against 7.4 times in the previous fiscal. Core gross refining margins (GRMs) at standalone level, have declined to USD 2.6 per barrel (bbl), from USD 4.8 per bbl over the same period, mainly owing to declining product spreads and weaker demand.
 
* Limited pricing flexibility for SKO and LPG
The company has under-recoveries on account of controlled prices of SKO and LPG in the domestic market. While GoI has provided budgetary support, absence of an institutionalised mechanism to meet under-recoveries have delayed subsidy receipts in the past. This risk is partially offset by de-regulation of price of diesel (which was earlier a major contributor to under-recoveries), and implementation of the Direct Benefit Transfer (DBT; or Pratyaksha Hastaantarit Laabh - PAHAL) scheme for LPG. Increased LPG penetration has also led to a sharp decline in kerosene consumption. These initiatives will help streamline the mechanism for meeting under-recoveries. However, timely receipt of subsidy and a well-defined institutionalised mechanism will be key to sustain financial health of the sector in the longer run.
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 limit, and access to low-cost funds from both domestic and overseas markets, can help raise resources when needed.

For fiscal 2021 and fiscal 2022, the company has long-term debt repayment of about Rs 2,100 crore and Rs 6000 crore and capex plan of about Rs. 26,000 crore, which are likely to be funded through a combination of operational cash flows and external borrowings.

Outlook: Stable

CRISIL believes IOCL will continue to benefit from government support, given its strategic and economic importance, and criticality of the sector, to GoI.

Rating Sensitivity factors
Downward scenario
* Significant increase in sales-related under-recoveries on account of adverse movement in crude oil prices and foreign exchange rates, with inadequate pass-through in retail price or compensation from GoI
* Change in government'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 (established in 1958) and Indian Oil Company Ltd (established in 1959). IOCL is an integrated oil refining and marketing company. Along with its subsidiary, Chennai Petroleum Corporation Ltd (CPCL; '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 - IOCL Consolidated*
Particulars Unit 2020^ 2019
Revenue Rs Cr. 484,362 526,150
Profit After Tax Rs Cr. -893 17,174
Profit Margin % -0.2 3.2
Adjusted Debt/Adjusted Networth Times 1.35 0.92
Interest coverage Times 2.5 7.43
*Above numbers reflect analytical adjustments made by CRISIL Ratings
^Abridged numbers

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels.
Annexure - Details of Instrument(s)
ISIN Name of
Instrument
Date of
Allotment
Coupon Rate (%) Maturity
Date
Issue Size (Rs Cr) Complexity
Level
Rating Assigned
with Outlook
INE242A08445 Non-Convertible Debentures 14-Jan-20 6.44 14-Apr-23 2,000 Simple CRISIL AAA/Stable
INE242A08437 Non-Convertible Debentures 22-Oct-19 7.41 22-Oct-29 3,000 Simple CRISIL AAA/Stable
INE242A08452 Non-Convertible Debentures 06-Mar-20 6.39% 06-Mar-25 2,995 Simple CRISIL AAA/Stable
INE242A08460 Non-Convertible Debentures 27-May-20 5.05% 25-Nov-22 3,000 Simple CRISIL AAA/Stable
NA Non-Convertible Debentures# NA NA NA 2000 Simple CRISIL AAA/Stable
NA Fund-Based Facilities* NA NA NA 26,300 NA CRISIL AAA/Stable
NA Non-Fund-Based Limit* NA NA NA 19,500 NA CRISIL A1+
NA Proposed Non-Fund-Based Limits NA NA NA 7,000 NA CRISIL A1+
NA Proposed Short-Term Bank Loan Facility NA NA NA 28,000 NA CRISIL A1+
NA Non-Convertible Debentures# NA NA NA 5 NA CRISIL AAA/Stable
#Yet to be issued  
*Fund-based facilities are one way fully interchangeable with non-fund-based facilities
 
Annexure - List of entities consolidated
Company % Consolidation Reason for Consolidation
Avi-Oil India Pvt Ltd 25.00% Associate IOCL's subsidiaries have been fully consolidated and the JVs have been proportionately consolidated. These entities are strategically important for IOCL's business risk profile and have considerable operational integration with IOCL.
Chennai Petroleum Corporation Ltd 51.89% Subsidiary
Delhi Aviation Fuel Facility Pvt Ltd 37.00% Joint venture
Green Gas Ltd 49.97% Joint venture
GSPL India Gasnet Ltd 26.00% Joint venture
GSPL India Transco Ltd 26.00% Joint venture
Hindustan Urvarak and Rasayan Ltd* 29.67% Joint venture
Indian Catalyst Pvt Ltd 100.00% Subsidiary
Indian Oil (Mauritius) Ltd 100.00% Subsidiary
Indian Oil LNG Pvt Ltd 50.00% Joint venture
Indian Oil Petronas Pvt Ltd 50.00% Joint venture
Indian Oil Skytanking Pvt Ltd 50.00% Joint venture
Indian Synthetic Rubber Pvt Ltd 50.00% Joint venture
IndianOil Adani Gas Pvt Ltd 50.00% Joint venture
IndOil Global BV 100.00% Subsidiary
IOC Middle East FZE 100.00% Subsidiary
IOC Sweden AB 100.00% Subsidiary
IOCL (USA) Inc. 100.00% Subsidiary
IOCL Singapore PTE Ltd 100.00% Subsidiary
Kochi Salem Pipelines Pvt Ltd 50.00% Joint venture
Lanka IOC PLC 75.12% Subsidiary
Lubrizol India Pvt Ltd 26.00% Joint venture
Mumbai Aviation Fuel Farm Facility Pvt Ltd 25.00% Joint venture
NPCIL - IndianOil Nuclear Energy Corporation Ltd 26.00% Joint venture
Indradhanush Gas Grid Limited 20.00% Associate
Petronet India Ltd 18.00% Associate
Petronet LNG Ltd 12.50% Associate
Petronet VK Ltd 50.00% Associate
Indian Oil Panipat Power Consortium Limited 50.00% Joint venture
IHB Private Limited 50.00% Joint venture
Petronet CI Limited 26.00% Associate
Ratnagiri Refinery & Petrochemicals Ltd 50.00% Joint venture
Suntera Nigeria 205 Ltd 25.00% Joint venture
*Shareholding as per JVA. However, current shareholding is Indian Oil, CIL and NTPC holding 33.33% each and FCIL & HFCL holding 0.01%
Annexure - Rating History for last 3 Years
  Current 2020 (History) 2019  2018  2017  Start of 2017
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  13000.00
24-07-20 
CRISIL AAA/Stable  19-05-20  CRISIL AAA/Stable  30-04-19  CRISIL AAA/Stable  27-04-18  CRISIL AAA/Stable  30-11-17  CRISIL AAA/Stable  CRISIL AAA/Stable 
        27-02-20  CRISIL AAA/Stable               
Fund-based Bank Facilities  LT/ST  54300.00  CRISIL AAA/Stable/ CRISIL A1+  19-05-20  CRISIL AAA/Stable/ CRISIL A1+  30-04-19  CRISIL AAA/Stable/ CRISIL A1+  27-04-18  CRISIL AAA/Stable/ CRISIL A1+  30-11-17  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
        27-02-20  CRISIL AAA/Stable/ CRISIL A1+               
Non Fund-based Bank Facilities  LT/ST  26500.00  CRISIL A1+  19-05-20  CRISIL A1+  30-04-19  CRISIL A1+  27-04-18  CRISIL A1+  30-11-17  CRISIL A1+  CRISIL A1+ 
        27-02-20  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 facilities are one way fully interchangeable with non-fund-based facilities
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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