Rating Rationale
November 30, 2020 | Mumbai
Mangalore Refinery and Petrochemicals Limited
 Ratings Reaffirmed 
 
Rating Action
Rs.3000 Crore Non Convertible Debentures CRISIL AAA/Stable (Reaffirmed)
Corporate Credit Rating CCR 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 Limited (MRPL). The corporate credit rating (CCR) is also reaffirmed at 'CCR AAA/Stable'.
 
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 AA/Stable/CRISIL A1+'). MRPL holds a majority stake of 51% in OMPL and both companies have operational synergies, common management control, and operate in the same line of business. MRPL is in the process of acquiring the remaining 49% stake from ONGC for a cash consideration of Rs 1,217 crore, wherein OMPL would then be merged with MRPL. The required regulatory approvals have been received and both MRPL as well as ONGC's board have accorded their consent for the merger; and accordingly the transaction is expected to be completed by March 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. MRPL's majority stake in OMPL increases its strategic importance 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 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 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 Business and financial linkages
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
--  CCR  0.00  CCR AAA/Stable      29-11-19  CCR AAA/Stable  29-03-18  CCR AAA/Stable  20-03-17  CCR AAA/Stable  CCR AAA 
            28-03-19  CCR AAA/Stable           
Non Convertible Debentures  LT  2560.00
30-11-20  		CRISIL AAA/Stable      29-11-19  CRISIL AAA/Stable    --    --  -- 
All amounts are in Rs.Cr.
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
CRISILs Criteria for Consolidation
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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