By Ankur Rustagi

India Ratings and Research (Ind-Ra) has affirmed HPCL Mittal Pipelines Limited’s (HMPL) Long-Term Issuer Rating at ‘IND AA+’. The Outlook is Stable. The instrument-wise rating actions are as follows:   
 

Instrument Type

Date of Issuance

Coupon Rate

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

Term loan

-

-

March 2021 - April 2021

USD0.2625

IND AA+/Stable

Affirmed

Non-convertible debentures (NCDs)#

-

-

-

INR2.23

IND AA+/Stable

Affirmed

Commercial paper (CP)

Up to 365 days

INR3.00

IND A1+

Affirmed

Short-term loan

INR2.00

IND A1+

Affirmed

 

#Details are given in Annexure

Analytical Approach: Ind-Ra continues to factor in support provided to HMPL by its parent, HPCL-Mittal Energy Limited (HMEL; ‘IND AA+’/Stable; holds 100% in HMPL) in view of the strong operational and strategic linkages between the entities.

KEY RATING DRIVERS

Strong Linkages with Parent:  HMPL is critical to the smooth functioning of HMEL’s refinery operations, considering the subsidiary is the only service provider for the receipt and transportation of crude. HMEL pays HMPL for the usage of the pipeline at the rates that are mutually agreed upon by both parties before the beginning of each contract year. Additionally, all of HMPL’s borrowings are backed by a corporate guarantee from HMEL, for which a guarantee commission of 1% per annum is paid on the debt outstanding at the year-end.

Pick-up in Revenue Post Refinery Stabilisation: HMPL’s revenue increased 41.7% yoy to INR11.0 billion in FY19 due to stabilization of refinery operations at HMEL. In line with the revenue growth, the EBITDA of the company grew 40% yoy to INR6.3 billion (INR4.5 billion). The EBITDA margins reduced marginally to 57.7% (FY18:  58.7%).. In 8MFY20, HMPL earned revenue of INR7.1 billion, with EBITDA of INR4.1 billion. Over the medium term, Ind-Ra expects  HMPL’s EBITDA margin to remain at healthy levels of above 55% and its throughput capacity to remain at around 12 million tonnes per annum (mtpa), assuming the refinery utilisation to be at average historical levels of above 105%. In FY21, HMPL’s revenue would be impacted by the planned shutdown of HMEL’s refinery.

Healthy Cash Flows: HMPL’s cash flow from operations returned to historic levels in FY19 (FY19: INR1.5 billion, FY18: INR4.1 billion, FY17: INR1.8 billion) due to normalisation of the working capital cycle. Although HMPL’s pipeline is designed to support a refinery capacity of 18mtpa, the company incurred additional capex of around INR4.2 billion during FY17-FY18 to operationalise additional pumps to cater to the expansion in HMEL’s capacity. During FY18, HMEL provided support to HMPL in the form of reduction of debtor days to zero and advances of INR2 billion. These advances were repaid in FY19. HMPL does not have any major capex planned for FY20-FY21. Furthermore, Ind-Ra expects cash flow from operations to remain strong over FY20-FY21 due to stable EBITDA generation. Additionally, the agency believes the parent would provide liquidity support if required.

Liquidity Indicator – Adequate: HMPL’s utilisation of commercial paper limits amounting INR3 billion was 66% during 12 months ended November 2019. The company has nominal debt repayments of INR0.2 billion and INR0.4 billion in FY21 and FY22, respectively. HMPL has a short-term loan facility of INR2 billion, which was almost entirely unutilised at end-March 2019. During FY19, supported by healthy cash flows, HMPL redeemed NCDs amounting INR2 billion before the due date of maturities. HMPL’s liquidity is supported by low repayment obligations till FY22, sufficient unutilised bank limits and considerable access to the capital market.

Comfortable Credit Metrics: Despite a marginal increase in gross debt to INR24.6 billion in FY19 (INR24.0 billion), HMPL’s credit metrics improved in FY19 because of the increase in EBITDA. The company’s gross interest coverage (EBITDA/gross interest expenses) was 3.3x in FY19 (FY18: 1.5x) and net leverage net debt/EBITDA) was 3.9x (5.3x). As of end-March 2019, HMPL had short-term debt of INR3 billion and long-term debt of INR21.6 billion, with around 73% of the total debt being denominated in US dollars. Ind-Ra expects the credit profile to remain comfortable in the medium term, considering the absence of any major planned capex and healthy cash generation. 


RATING SENSITIVITIES

Negative: A downgrade in HMEL’s ratings or a reduction in parent support could be negative for HMPL’s ratings.


COMPANY PROFILE

HMPL is wholly owned by HMEL, a joint venture between Hindustan Petroleum Corporation Limited (‘IND AAA’/Stable) and Singapore-based Mittal Energy Investment Pte Ltd. HMPL has set up a crude oil terminal, single buoy mooring at Mundra Port, Gujarat and a 1,017 km cross-country pipeline from Mundra to Bathinda (Punjab) to meet the crude receipt and storage requirements of HMEL’s refinery capacity at Bathinda.

 FINANCIAL SUMMARY

Particulars

FY19

FY18

Net revenue (INR billion)

11.0

7.8

EBITDA (INR billion)

6.3

4.6

EBITDA margin (%)

57.7

58.7

EBITDAR interest coverage (x)

3.3

1.5

Net adjusted leverage (x)

3.9

5.3

Source: HMPL, Ind-Ra

 

 

 


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (billion)

Rating

21 December 2018

10 January 2017

6 July 2016

Issuer rating

Long-term

-

IND AA+/Stable

IND AA+/Stable

IND AA/Positive

IND AA-/Stable

Term loan

Long-term

USD0.2625

IND AA+/Stable

IND AA+/Stable

IND AA/Positive

IND AA-/Stable

NCDs

Long-term

INR2.23

IND AA+/Stable

IND AA+/Stable

IND AA/Positive

IND AA-/Stable

CP

Short-term

INR3.00

IND A1+

IND A1+

-

-

Short-term loan

Short-term

INR2.00

IND A1+

IND A1+

-

-

ANNEXURE

Instrument

ISIN

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (billion)

Rating/Outlook

Rating Action

NCDs

INE803N07019

5 October 2012

4

5 October 2022

2.00

IND AA+/Stable

Affirmed

NCDs

INE803N07027

21 August 2012

4

21 August 2020

0.10

IND AA+/Stable

Affirmed

NCDs

INE803N07035

21 August 2012

4

21 August 2021

0.08

IND AA+/Stable

Affirmed

NCDs

INE803N07043

21 August 2012

4

21 August 2022

0.05

IND AA+/Stable

Affirmed

Total

INR2.23


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Ankur Rustagi

    Senior Analyst
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    0124 6687261

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121