Rating Rationale
December 31, 2020 | Mumbai
Numaligarh Refinery Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.800 Crore
Long Term Rating CRISIL AAA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the bank facilities of Numaligarh Refinery Limited (NRL).
 
On November 20, 2019, the Cabinet Committee on Economic Affairs (CCEA) accorded its in-principle approval for a strategic divestment of the 61.65% stake of Bharat Petroleum Corporation Ltd (BPCL; 'CRISIL AAA/Watch Developing/CRISIL A1+') in NRL, along with transfer of management control to another suitable central public sector enterprise (CPSE). CRISIL believes the transfer of ownership to a CPSE is unlikely to impact the ultimate ownership by and support from the Government of India (GoI). Furthermore, GoI has decided to keep NRL outside the divestment process, which demonstrates the strategic importance of the company to the government. NRL is likely to continue to receive business and financial support from any new CPSE parent.
 
The ratings continue to reflect the strong operational support to be received from the current parent, BPCL, and CRISIL's expectation of continued support from the new CPSE parent. The ratings also factor in healthy operating performance and strong financial risk profile. These strengths are partially offset by the location of the facilities in a product-surplus region.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of NRL and its joint venture (JV) and associates. The JV and associates are strategically important to NRL as they reduce external dependence for their products and operations. Furthermore, the ratings factor in support received from the GoI with managerial control and majority ownership through BPCL and Oil India Limited (OIL; 26% stake), both public sector undertakings. BPCL's stake in NRL is expected to be transferred to a CPSE. Accordingly, CRISIL believes the company will continue to receive support from GoI through the new CPSE parent.

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:
* Continued support from the GoI through CPSE parent and operational support from BPCL to continue
BPCL currently owns 61.65% equity stake in NRL. NRL is BPCL's only refinery in North-East India and the former sells 80%-85% of its production to the latter. The company has entered into a memorandum of understanding (MoU) with BPCL for a tenure of 15 years, wherein the latter has undertaken to procure the entire offtake of NRL. This agreement even covers production from the upcoming capacity.
 
As per the CCEA order, the strategic divestment of BPCL's stake in NRL along with transfer of management control will be to a CPSE. Accordingly, the company is likely to continue to receive support from the GoI through its new parent. 
 
* Healthy operating performance
NRL's operating performance has continued to remain healthy, supported by higher gross refining margin (GRM) the company receives. This is mainly contributed by 50% excise duty exemption the company is entitled to, as it is located in North-East India. The company is among the most efficient refineries in India, with a Nelson Complexity Index of 9.61.
 
Throughput was lower at 79% in fiscal 2020 (as compared to 97% in fiscal 2019), as the plant had to undergo planned maintenance shutdown of around 30 days, which was further extended by around 15 days on account of local agitations faced in Assam over the Citizenship (Amendment) Bill. Despite Covid-19-induced lockdown restrictions placed during the first half of fiscal 2021, NRL was able to maintain healthy throughput of 85%. Since then, operations have resumed normalcy with the refinery currently operating at average utilisation of 95%.  
 
GRMs declined in fiscal 2020 on account of lower throughput, as well as inventory losses that were incurred during the fourth quarter, because of steep crash in crude oil prices. Despite a comparative lower throughput in the first half of fiscal 2021, margins have improved mainly on account of a hike in excise duty rates (wherein NRL is entitled to a 50% exemption).
 
* Strong financial risk profile
Low debt and ample liquidity has kept the financial risk profile strong. The gearing was low at 0.01 time as on March 31, 2020. Due to minimal utilisation, NRL has even reduced its fund-based limit requirement from Rs 450 crore to Rs 149 crore. The company is in the process of expanding its refinery capacity by 6 million tonne per annum (mmtpa), with an expected capital outlay of Rs 22,594 crore. While the execution is at its initial stage, CRISIL expects the financial risk profile to continue to remain comfortable on account of the company's healthy operating performance and financial flexibility.
 
Weakness:
* Location in a product-surplus region
Presence in the North East, a product-surplus region, presents logistical disadvantages given the need to transport products to oil marketing companies in other regions. However, the challenges have been mitigated with OIL commissioning a 660-kilometre product pipeline from Numaligarh to Siliguri in West Bengal.
Liquidity Superior

The company maintains sufficient cash and liquid investments in its books, wherein Rs 390 crore was the balance as on March 31, 2020. With no long-term loans in the books, the company does not have any debt obligation in the near term. Due to minimal utilisation, NRL has even reduced its fund-based limit requirement from Rs 450 crore to Rs 149 crore.

Outlook: Stable

CRISIL believes the company is likely to continue to receive support from the GoI through its CPSE parent.

Rating Sensitivity factors
Downward factors:
* Significant reduction in support philosophy from GoI
* Sustained decline in the GRM to below USD 20 per barrel
About the Company

NRL's refinery has 3 mmtpa capacity and is located near Jorhat in the Golaghat district of Assam. It was commissioned in 2000. The company is in the process of further expanding its refinery to 9 mmtpa, which is expected to be completed by end of 2024.
 
BPCL currently owns 61.65% of NRL's equity, the Government of Assam owns 12.35% and OIL owns 26%. While on November 20, 2019, the CCEA had accorded its in-principle approval to divest the GoI's stake in BPCL, NRL has been kept outside the divestment process. BPCL's stake in NRL would be taken over by a CPSE.
 
For the six months ended September 30, 2020, NRL reported profit after tax (PAT) of Rs 1,301.35 crore on revenue of Rs 5,468.33 crore, against PAT of Rs 795.30 crore on revenue of Rs 7,012.5 crore for the corresponding period of the previous fiscal.

Key Financial Indicators
Particulars Unit 2020 2019
Revenue Rs crore 11,934 16,205
Profit after tax (PAT) Rs crore 1,533 1,980
PAT margin % 12.8 12.2
Adjusted debt/adjusted networth Times 0.01 0.01
Interest coverage Times 1035.9 259

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 crore)		 Complexity Level Rating assigned
with outlook
NA Cash Credit* NA NA NA 149 NA CRISIL AAA/Stable
NA Letter of credit & Bank Guarantee NA NA NA 100 NA CRISIL A1+
NA Proposed Letter of Credit &
Bank Guarantee		 NA NA NA 500 NA CRISIL A1+
NA Proposed Short Term
Bank Loan Facility		 NA NA NA 51 NA CRISIL A1+
*Interchangeable with Working Capital Demand Loan
 
Annexure - List of entities consolidated
Particulars % of ownership interest
Joint venture  
Indradhanush Gas Grid Ltd 20.00%
Assam Bio Refinery Pvt Ltd 50.00%
DNP Ltd 26.00%
Associate  
Brahmaputra Cracker and Polymer Ltd 10.00%
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
Fund-based Bank Facilities  LT/ST  200.00  CRISIL AAA/Stable/ CRISIL A1+      29-11-19  CRISIL AAA/Stable/ CRISIL A1+  30-04-18  CRISIL AAA/Stable/ CRISIL A1+  24-10-17  CRISIL AAA/Stable/ CRISIL A1+  CRISIL AAA/Stable/ CRISIL A1+ 
            22-07-19  CRISIL AAA/Stable/ CRISIL A1+           
Non Fund-based Bank Facilities  LT/ST  600.00  CRISIL A1+      29-11-19  CRISIL A1+  30-04-18  CRISIL A1+  24-10-17  CRISIL A1+  CRISIL A1+ 
            22-07-19  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
Cash Credit* 149 CRISIL AAA/Stable Cash Credit* 450 CRISIL AAA/Stable
Letter of credit & Bank Guarantee 100 CRISIL A1+ Letter of credit & Bank Guarantee 70 CRISIL A1+
Proposed Letter of Credit & Bank Guarantee 500 CRISIL A1+ Proposed Letter of Credit# 30 CRISIL A1+
Proposed Short Term Bank Loan Facility 51 CRISIL A1+ Proposed Long Term Bank Loan Facility 50 CRISIL AAA/Stable
-- 0 -- Proposed Short Term Bank Loan Facility 200 CRISIL A1+
Total 800 -- Total 800 --
*Interchangeable with Working Capital Demand Loan
#Interchangeable with Bank Guarantee
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
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support

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