The agency has affirmed BPCL’s senior unsecured rating and the ratings on its outstanding senior unsecured debt at ‘BBB-’.
Fitch has also affirmed the rating on subsidiary BPRL International Singapore Pte. Ltd.‘s US-dollar guaranteed notes at ’BBB-‘. The rating agency equates BPCL’s rating with its largest shareholder, India (BBB-/Stable), under our Government-Related Entities (GRE) rating criteria.
“We maintain BPCL’s Standalone Credit Profile (SCP) at ‘bb+’, as we expect net leverage to improve to a level in line with the SCP from the financial year ending March 2025 (FY25), after breaching the SCP’s negative sensitivity over FY23-FY24," Fitch said in a statement.
“We expect negative FY23 EBITDA on marketing losses from retail price-freezes for petrol, diesel and liquified petroleum gas (LPG), despite surging oil prices. However, increased state support, especially on regulated products like LPG, may ease the burden (not factored into our base case)," it added.
Fitch expects BPCL to generate gross marketing losses in FY23, as oil marketing companies bear the largest burden of surging crude oil prices, with only limited increases being passed on to consumers despite cuts in taxes on retail sales.
“We believe near-term prices will remain a function of the government’s efforts to balance OMCs‘ financial health with inflationary and fiscal pressures. However, the marketing segment should turn profitable from FY24 as crude oil prices fall to Fitch’s assumption of USD80 per barrel," a Fitch statement said.
“We expect marketing margins to remain aligned with crude oil prices over the long term. The government previously allowed OMCs to recoup losses from the temporary suspension of daily price resets in subsequent periods. However, prolonged state interference in auto-fuel retail prices and marketing losses could be negative for BPCL’s SCP," it added.
Fitch expects BPCL’s marketing volumes to rise to around 48 million metric tons (MMT) in FY23, from 44.6MMT in FY22. This is based on our expectation of a 7% growth in India’s GDP, as mobility and economic activity improve after the pandemic. BPCL’s 1QFY23 marketing volumes of 12.3MMT were one of its highest; and while demand may dip seasonally in 2QFY23 with the monsoons, it should pick up again in 2HFY23 on the holiday season.
In a statement, Fitch said it expects annual capex of ₹100 billion over FY23-26, with most spent on marketing, petrochemical and refining segments. BPCL seeks to add around 1,500 retail outlets per year for the next few years. Pre-project activities are ongoing to set up a 1.2 million tonne per annum (mtpa) ethylene cracker at its Bina refinery and a 0.4mtpa polypropylene project at Kochi Refinery over the next four years, with small projects to revamp existing refineries under way.
BPCL intends to invest around ₹10 billion to ₹15 billion per year each in its city gas distribution and upstream business.
BPCL, which is majority owned by the state, is the third-largest refiner in India with a capacity of 35.3 million tonne per year and the joint second-largest marketer of petroleum products, with around 24% market share through 20,217 retail outlets. It also operates upstream and city-gas distribution businesses.
