| Chennai Petroleum Corporation Limited | ||||||||
| Ratings Reaffirmed | ||||||||
| Rating Action | ||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AAA/Stable/CRISIL A1+’ ratings on the bank loan facilities and debt instruments of Chennai Petroleum Corporation Ltd (CPCL).
The ratings continue to derive comfort from the strong operational, managerial, and financial support CPCL receives from its parent Indian Oil Corporation Limited (IOCL, rated ‘CRISIL AAA/Stable/CRISIL A1+’), wherein the company continues to be strategically important to its parent.
Operating performance has remained healthy in fiscal 2023 and during the first nine months of fiscal 2024, mainly benefited by healthy GRMs and a comfortable physical performance. Overall GRMs improved to $11.91/bbl. in fiscal 2023 as compared to $8.85/bbl. in the year previous and remained healthy at $8.98/bbl. in the first nine months of fiscal 2024. The moderation in GRMs in this fiscal is mainly led by moderation in the realised product crack spreads. Over the medium term, company’s GRMs are expected to be healthy, albeit moderated from the FY2023 levels and in-line with moderation in the product crack spread in the international markets.
Healthy operating performance has led the marked improvement in overall financial risk profile, with total debt reducing to Rs 3,402 crore as of September 30, 2023 from Rs 9,223 crore as on March 31, 2022. Gearing is expected to remain at less than 0.5-0.7 times as on March 31, 2024, improving from 0.68 times as on March 31, 2023 and 3.36 times seen as on March 31, 2022. Over the medium term, healthy operating performance and cash accruals should be sufficient to fund the capex needs as well as planned investments with successive moderation in debt levels keeping financial risk profile healthy. |
Analytical Approach CRISIL Ratings has centrally factored in the strong business and financial linkages with its parent, IOCL. IOCL had infused Rs 1,000 crore in fiscal 2016 through subscription of non-convertible, cumulative and redeemable preference shares to support the capital requirement of CPCL; these shares have been treated as debt. CPCL redeemed Rs 500 crore of these shares in June 2018. |
Key Rating Drivers & Detailed Description Strengths:
For the planned refinery expansion of 9 million metric tonne per annum (mmtpa) to be set up, CPCL has budgeted an investment of around Rs 2,570 crore, for a 25% equity stake in the joint venture, given the project cost of Rs 31,580 crore envisaged few years ago; which may increase by Rs 400-500 crore owing to inflation. For the said investment, the company has already invested Rs 868 crore as on March 31, 2023. Even on factoring in the remaining investment, the financial risk profile should remain comfortable, with adjusted gearing at below 0.5-0.7 times.
Weaknesses:
ESG Profile CRISIL Ratings believes that CPCL’s Environment, Social, and Governance (ESG) profile supports its strong credit risk profile.
The Oil and Gas sector has a moderate environmental and social impact, primarily driven by its raw material sourcing strategies, waste intensive process, and its direct impact on the health of the environment. CPCL has continuously focused on mitigating its environmental and social risks.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. CPCL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Liquidity: Superior Financial flexibility remains healthy, backed by the strong funding support received from IOCL. CPCL is expected to earn strong annual cash accruals for the second consecutive year this fiscal, of Rs 2500-3000 crore; which may moderate over the medium term but still remain in Rs 1,000-1,500 crore. Debt repayments of around Rs 900 crore in fiscals 2025, comprising mainly of Rs 775 crore NCDs is expected to be repaid using internal accruals. Company has about Rs 860 crore repayments in fiscal 2026. Furthermore, on an average there has been a minimal utilisation of the fund-based limits, over the past one year. |
Outlook: Stable The ‘Stable’ outlook reflects CRISIL Rating’s outlook on CPCL’s parent. The company’s status as a subsidiary of IOCL enhances its competitive position in the domestic market. IOCL extends financial and management support to CPCL and provides assured offtake for around 90% of the latter’s finished products |
Rating Sensitivity factors Downward factors:
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About the Company CPCL was incorporated as Madras Refineries Ltd in 1965, a JV between the Government of India, National Iranian Oil Co (NIOC) and American Oil Co (a wholly owned subsidiary of USA-based Standard Oil Co). In March 2001, IOCL acquired the government’s equity stake for Rs 510 crore, and NIOC transferred its stake to its affiliate, Naftiran Intertrade Co Ltd (NICL), in July 2003. Currently, IOCL holds 51.89% stake in CPCL while NICL holds 15.40%; the remainder is held by financial institutions, corporate bodies, the general public and others.
Currently, CPCL has a refining capacity of 10.5 mmtpa at Manali. The company produces petroleum products, lubricants, and additives. CPCL also provides high-quality feedstock such as propylene, superior kerosene, butylenes, naphtha, paraffin wax, and sulphur to other industries.
CPCL, through a JV, is setting up a 9-mmtpa refinery at Cauvery Basin, Nagapattinam, at an estimated project cost of Rs 31,580 crores. Both CPCL and IOCL’s board have approved the expansion plans. JV is being formed, wherein IOCL and CPCL will together hold a 50% stake (i.e. 25% each in the JV), while the remaining 50% is to be held by other seed investors. CPCL’s investment in this project would be limited to its equity investment of around Rs. 2570 crore.
CPCL has a high nelson complexity index (NCI) of 10.03 (refineries with high NCI have the necessary flexibility to process a variety of crude oils and can record high value addition).
For the nine months ended December 31, 2023, CPCL reported profit after tax (PAT) of Rs 2,099 crore on revenues of Rs 48,665 crore as against PAT of Rs 2,530 crore on revenues of Rs 58,726 crore for the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
$Not yet placed *Full interchangeability with packing credit |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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