Rating Rationale
January 12, 2021 | Mumbai
Mangalore Refinery and Petrochemicals Limited
Rating reaffirmed at 'CRISIL AAA / Stable , CCR AAA / Stable'
 
Rating Action
Rs.3000 Crore Non Convertible DebenturesCRISIL AAA/Stable (Reaffirmed)
Corporate Credit RatingCCR AAA/Stable (Reaffirmed)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL has reaffirmed its ‘CRISIL AAA/Stable’ rating on the Non-Convertible Debentures of Mangalore Refinery and Petrochemicals Ltd (MRPL). The corporate credit rating (CCR) is also reaffirmed at 'CCR AAA/Stable'.

 

On January 02, 2021, MRPL completed the acquisition of 49% stake in OMPL from ONGC for a cash consideration of Rs 1,217 crore thereby increasing its own stake to 99.99% from 51% earlier thus making OMPL a wholly-owned subsidiary of MRPL. Further, MRPL is in the process of amalgamating OMPL with itself and the same is expected to be completed over next six months. The acquisition of shares and the expected amalgamation does not have any impact on the credit profile of MRPL since OMPL (being a 51% subsidiary earlier) was always consolidated with the former while assessing the credit risk considering the operational synergies, common management control and commonality in operations of these entities.

 

The rating continues to reflect the favourable business risk profile of the company and the strong operational, financial and managerial support that the company receives from its parent, Oil and Natural Gas Corporation Ltd (ONGC). These strengths are partially offset by the company's moderate financial risk profile and exposure to risks related to volatility in crude oil prices.

Analytical Approach

The rating centrally factors in the strategic importance of the company to, and strong support from, its parent ONGC. CRISIL has taken a consolidated view of MRPL and ONGC Mangalore Petrochemicals Ltd (OMPL; rated CRISIL AAAr(CE)/Provisional CRISIL AAAr(CE)/Stable/CRISIL A1+). MRPL holds a 99.99% stake in OMPL post acquisition of 49% stake from ONGC on January 02, 2021.

 

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:

  • Strong support from parent:

MRPL benefits significantly from the operational, financial, and managerial support of parent, ONGC, which owns an effective 80% stake in the company. The company is critical to ONGC's goal of becoming an integrated oil and gas entity with presence across exploration & production, refining, and marketing. Business integration of OMPL with MRPL increases the strategic importance of the latter to ONGC, which aims to be the leader in the oil, gas and petrochemicals value chain.

 

  • Favourable business profile:

MRPL has a high Nelson complexity index (NCI) of 9.78 (refineries with high NCI have the necessary flexibility to process a variety of crude oils and can record high value addition). High operating efficiency enables processing of sour crude and optimises distillation yield.

 

GRMs reported for fiscal 2020 however weakened to -$0.23/bbl (as compared to $4.06/bbl reported for fiscal 2019). The refinery also operated at a lower throughput of 93% (as compared to 108% in fiscal 2019). The weakness was mainly on account of a temporary disruption in operations caused by scarcity in water supply (impacting operations in Q1FY20) and occurrence of a landslide caused by heavy rainfall (impacting operations in Q2FY20). This was further aggravated by the heavy inventory losses incurred during the fourth quarter, caused by a steep crash in crude oil prices.

 

GRMs continued to remain weak at $1.55/bbl during the first half of fiscal 2021, caused by subdued demand environment amidst the ongoing COVID-19 pandemic. While the core GRMs were weak, the same was partially compensated by the inventory gains earned on recovery of crude oil prices. The refinery operated at an average utilisation of 58% during the first half of fiscal 2021. Since then, the operations have gradually resumed with the refinery currently operating at an average utilisation of around 80-90%.

 

Weakness:

  • Moderate financial risk profile:

Capital structure remains moderate with gearing of 2.53 times as on March 31, 2020. Debt coverage indicators have weakened in fiscal 2020 with the repayment obligations mainly being met through additional borrowings. The weakening of the financial risk profile has mainly been on account of a decline in the operating performance of the company. Further, MRPL has budgeted to undertake a debt-funded capex of around Rs 1200 crore in fiscal 2021, to complete the BS-VI quality upgradation project as well as to set up a desalination plant (to mitigate the issue of a shortage in water supply).

 

  • Susceptibility to volatility in crude oil prices:

Crude oil prices have been volatile over the past few years. Prices fell sharply to around USD 20 per barrel (bbl) towards end of March 2020, from over USD 69 in the beginning of January 2020. Such volatility in prices resulted in heavy inventory losses, thus hampering the operating performance. The company imports around 80% of its crude oil requirement and accordingly such large import dependence also exposes its performance to volatility in foreign exchange rates.

Liquidity: Superior

The parental support received from ONGC benefits the financial flexibility of MRPL, enabling it to access funding sources at attractive rates. On an average, MRPL generates healthy cash accruals of Rs 1000 crores, although performance has weakened in the past fiscal. MRPL also has access to fund based limits of Rs. 900 crores, with minimal utilisation. The company had availed 1.0 of the RBI announced moratorium facility as the operations were impacted by the intermittent lockdown announced across the country. The company has repayment obligations of around Rs 1,800 crores in fiscal 2021, amongst which Rs. 600 crore has been repaid. The remaining obligation would be funded through a mix of internal accruals and refinancing.

Outlook Stable

CRISIL believes MRPL will remain strategically important to, and will continue to receive operational, managerial, and financial support from parent, ONGC.

Rating Sensitivity Factors

Downward Factors

  • Deterioration in credit profile of ONGC
  • Sustained deterioration in the GRMs reported to below $4/bbl

About the Company

MRPL, a standalone refinery, is a 71.6% subsidiary of ONGC. The refinery is located near Mangalore port, on the west coast of India. In fiscal 2012, MRPL's nameplate capacity increased to 15 million tonne per annum with commissioning of the crude and vacuum distillation units of its Phase-III expansion project. OMPL's plant, commissioned in fiscal 2015, has capacity to produce around 920 kilo tonne per annum (ktpa) of paraxylene and around 280 ktpa of benzene, along with other by-products. The plant has one of the largest paraxylene manufacturing capacities in India. It will utilise feedstock (naphtha and aromatic streams) from MRPL's refinery adjacent to the plant. OMPL's entire capacity has been commissioned and utilisation is ramping up.

 

For the six months ended September 30, 2020, MRPL incurred a loss of Rs 746.14 crore on revenue of Rs 10,588 crore, against a loss reported of Rs 1,559 crore on revenue of Rs 22,308 crore for the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated Financials)

Particulars

Unit

2020

2019

Revenue

Rs crore

50,501

63,215

Profit After Tax (PAT)

Rs crore

-4,039

351

PAT Margin

%

-8.00

0.56

Adjusted debt/adjusted networth

Times

2.53

1.58

Interest coverage

Times

-2.47

2.55

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 instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size

 (Rs.Cr)

Complexity levels

Rating assigned with outlook

INE103A08027

Non-Convertible Debentures

13-Jan-20

6.64%

14-Apr-23

500.0

Simple

CRISIL AAA/Stable

INE103A08019

Non-Convertible Debentures

13-Jan-20

7.40%

12-Apr-30

1000.0

Simple

CRISIL AAA/Stable

INE103A08035

Non-Convertible Debentures

29-Jan-20

7.75%

29-Jan-30

1060.0

Simple

CRISIL AAA/Stable

NA

Non-Convertible Debentures*

NA

NA

NA

440.0

NA

CRISIL AAA/Stable

*Not yet placed

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

ONGC Mangalore Petrochemicals Limited

Full

Wholly-owned subsidiary and common business

 

Annexure - Rating History for last 3 Years
  Current 2021 (History) 2020  2019  2018  Start of 2018
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Corporate Credit Rating LT 0.0 CCR AAA/Stable   -- 30-11-20 CCR AAA/Stable 29-11-19 CCR AAA/Stable 29-03-18 CCR AAA/Stable CCR AAA/Stable
Non Convertible Debentures LT 3000.0 CRISIL AAA/Stable   -- 30-11-20 CRISIL AAA/Stable 29-11-19 CRISIL AAA/Stable   -- --
      --   --   -- 28-03-19 CCR AAA/Stable   -- --
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
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support
CRISILs Criteria for Consolidation

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