Rating Rationale
November 11, 2021 | Mumbai
Oil India Limited
'CRISIL AAA/Stable/CRISIL A1+' assigned to Bank Debt and Commercial Paper
 
Rating Action
Total Bank Loan Facilities RatedRs.10000 Crore
Long Term RatingCRISIL AAA/Stable (Assigned)
Short Term RatingCRISIL A1+ (Assigned)
 
Rs.1000 Crore Commercial PaperCRISIL A1+ (Assigned)
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has assigned its 'CRISIL AAA/Stable/CRISIL A1+' ratings to the bank facilities and commercial paper programme of Oil India Limited (OIL). 

 

The ratings reflect the strong business risk profile of OIL, being the second largest fully integrated national oil and gas company in India with a strong foothold in the north-eastern region. While the company initially started off as an exploration & production (E&P) company, over the years it has gradually diversified its presence across the entire hydrocarbon value chain. Along with its presence in the domestic markets, OIL diversified in the international markets with exploratory rights in eight countries.

 

Further, its overall credit risk profile is supported by the strategic importance the company holds to the Government of India (GoI).

Analytical Approach

For arriving at the ratings, CRISIL Ratings has combined the business and financial risk profiles of OIL and its subsidiaries/associates. These subsidiaries/associates are strategically important to OIL in diversifying its presence across the entire hydrocarbon value chain, thereby reducing its exposure to the inherent E&P-related business risk.

 

The ratings also factor in the support OIL receives from GoI, by virtue of the latter holding a majority shareholding.

 

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 of OIL to, and support received from, GoI

OIL is strategically important to GoI, as the latter has and will continue to hold a majority stake (56.66% as on September 30, 2021) in the former. The oil and gas sector remains a critical sector to the government as it is one of the largest contributors to the exchequer. OIL contributed to around 11% of India’s crude oil production during fiscal 2021 and is the second-largest national oil company in the business of E&P of crude oil and natural gas, transportation of crude oil, and production of liquefied petroleum gas. As the largest player in the north-east region, it plays a crucial role in the implementation of GoI policies in the oil and gas sector, with added presence across the various business segments. OIL will remain strategically important to GoI and the latter is expected to continue providing the required managerial and financial support to OIL.

 

Presence across the hydrocarbon value chain

While OIL initially started off as an E&P company, it has gradually diversified its presence across the entire hydrocarbon value chain. OIL directly or indirectly has presence in refining, petrochemicals, oil and gas transportation, city gas distribution, renewable energy and green energy initiatives through various subsidiaries, associates and joint ventures. Furthermore, the company expanded its reach in the international markets, wherein it currently has participating interest in oil/gas blocks in eight countries.

 

Comfortable operating performance

Continued capital expenditure (capex) undertaken for the E&P operations ensured stability in the volumes of oil and gas extracted by OIL, despite a natural decline with aging of wells observed in the industry. Over the medium term, profitability from the crude oil E&P operations is expected to remain healthy, with an expectation that crude price could range between $60-65/bbl. vis-à-vis OIL’s crude oil producing cost of $30-35/bbl. (including government levies). A similar improvement in profitability is expected from the natural gas E&P operations, with steady recovery seen in gas prices.

 

OIL has also strategically invested in Numaligarh Refinery Ltd (NRL; CRISIL AAA/Stable/CRISIL A1+), with an aim of diversifying its presence in the oil refining segment. NRL’s operating performance has remained healthy, supported by the high gross refining margin. This is contributed by the 50% excise duty exemption the company is entitled to by virtue of government incentives since its inception. NRL’s refinery is also amongst the most efficient refineries in India having a high distillate yield and energy efficiency along with a Nelson Complexity Index of 9.20.

 

OIL also operates in varied business segments such as oil and gas transportation, petrochemicals, city gas distribution, renewable energy and green energy initiatives, which contributes to less than 10% of its revenue.

 

Healthy financial risk profile

Debt protection metrics were strong, with interest coverage and net cash accrual to total debt ratios of 12.80 times and 0.19 time, respectively, as on March 31, 2021 as against 10.18 times and 0.32 times, respectively, during the previous fiscal. Future budgeted capex requirements (excluding NRL's expansion) are expected to be majorly funded through cash accruals.

 

The subsidiary, NRL, is in the process of expanding its refining capacity by 6 million metric tonne per annum, with expected capital outlay of Rs 28,026 crore. While the execution is at its initial stage, its overall financial risk profile is still expected to remain comfortable; supported by healthy operating performance and financial flexibility. OIL equity investment towards this expanded capacity is expected to be around Rs 2,920 crore, to be invested over the next 4-5 years. 

 

Weakness

Susceptibility to inherent risks in the E&P business

OIL operates in a competitive, capital-intensive, volatile, and cyclical industry. The E&P activity calls for continuous and large investments, wherein the gestation period could be longer. For the international investments undertaken, profitability is also susceptible to significant geo-political risks, as some of the overseas blocks are in countries that have political instability.

Liquidity: Superior

Liquidity position is strong, with consolidated cash & equivalent balance maintained at Rs 1,969 crore as of March 2021. Around Rs 4,000 crore (excluding NRL’s expansion) of budgeted annual capex to be met through cash accruals. It also has access to sanctioned fund-based limit of Rs 295 crore, with minimal utilisation. Rs. 4300 crore of short-term borrowings that was raised in fiscal 2021 to fund the NRL acquisition would be repaid in fiscal 2022, mainly through cash accruals. There are no repayment obligations for fiscal 2023

Outlook: Stable

CRISIL Ratings expects the company’s business and financial risk profile will remain comfortable, as the required support from GoI would continue.

Rating Sensitivity Factors

Downward Factors

  • Change in GoI’s support philosophy or reduction in stake below 51%
  • Larger-than-expected debt-funded capex undertaken, weakening debt protection metrics

About the Company

OIL, incorporated in 1889, is a fully integrated E&P company, wherein it is the second largest national oil and gas company in India. It is a state-owned enterprise of the GoI (holds about 57% equity stake), under the administrative control of the Ministry of Petroleum and Natural Gas. The company through its various subsidiaries/joint venture/associates has diversified its presence across the entire value chain in the hydrocarbon sector.

Key Financial financials (Consolidated)

As on/for the period ended March 31

Unit

2021

2020

Revenue

Rs.Crore

18291

13566

Profit After Tax (PAT)

Rs.Crore

4140

3809

PAT Margin

%

22.64

28.08

Adjusted debt/adjusted networth

Times

0.79

0.44

Interest coverage

Times

12.80

10.18

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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

Complexity level

Issue size (Rs.Crore)

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

NA

295.00

CRISIL AAA/Stable

NA

Term Loan

Mar-21

Repo rate + 50 bps

Mar-24

NA

2000.00

CRISIL AAA/Stable

NA

Term Loan

Mar-21

91 days Tbill + 0.76

Mar-22

NA

1135.00

CRISIL AAA/Stable

NA

Letter of credit & Bank Guarantee

NA

NA

NA

NA

3322.00

CRISIL A1+

NA

Bank Guarantee

NA

NA

NA

NA

1314.03

CRISIL A1+

NA

Commercial paper

NA

NA

7-365 days

Simple

1000.00

CRISIL A1+

NA

Proposed Long Term Bank Loan Facility

NA

NA

NA

NA

1933.97

CRISIL AAA/Stable

Annexure - List of Entities Consolidated

Name of the company

%

Extent of consolidation

Rationale for consolidation

NRL

70%

Full

These entities are strategically important for OIL’s business risk profile and have considerable operational integration with OIL.

Oil India Sweden AB

100%

Full

Oil India Cyprus Ltd

76%, balance held by Oil India Sweden AB

Full

Oil India (USA) Inc

100%

Full

Oil India International B.V

100%

Full

Oil India International Pte Ltd

100%

Full

Brahmaputra Cracker and Polymer Ltd

10%

Proportionate

DNP Ltd

23%

Proportionate

Assam Petro-Chemicals Ltd

49%

Proportionate

Indradhanush Gas Grid Ltd

20% & 20% through NRL

Proportionate

HPOIL Gas Pvt Ltd

50%

Proportionate

Purba Bharati Gas Pvt Ltd

26%

Proportionate

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
Fund Based Facilities LT 5363.97 CRISIL AAA/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 4636.03 CRISIL A1+   --   --   --   -- --
Commercial Paper ST 1000.0 CRISIL A1+   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 377.45 State Bank of India CRISIL A1+
Bank Guarantee 324.58 Axis Bank Limited CRISIL A1+
Bank Guarantee 612 Axis Bank Limited CRISIL A1+
Cash Credit 145 State Bank of India CRISIL AAA/Stable
Cash Credit 140 HDFC Bank Limited CRISIL AAA/Stable
Cash Credit 5 Axis Bank Limited CRISIL AAA/Stable
Cash Credit 4 IndusInd Bank Limited CRISIL AAA/Stable
Cash Credit 1 ICICI Bank Limited CRISIL AAA/Stable
Letter of credit & Bank Guarantee 400 State Bank of India CRISIL A1+
Letter of credit & Bank Guarantee 2562 IndusInd Bank Limited CRISIL A1+
Letter of credit & Bank Guarantee 360 HDFC Bank Limited CRISIL A1+
Proposed Long Term Bank Loan Facility 1933.97 Not Applicable CRISIL AAA/Stable
Term Loan 1135 State Bank of India CRISIL AAA/Stable
Term Loan 2000 HDFC Bank Limited CRISIL AAA/Stable

This Annexure has been updated on 11-Nov-2021 in line with the lender-wise facility details as on 11-Nov-2021 received from the rated entity.

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Upstream Oil and Gas Sector
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Entities Based on Government Support
CRISILs Criteria for Consolidation

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