HMEL's credit profile resistant to stress, rating headroom low: Fitch
Jun 23, 2021
Mumbai (Maharashtra) [India], June 23 : HPCL-Mittal Energy Ltd's (HMEL's) credit metrics can weaken if there is a delay in EBITDA addition from its new petrochemical plant, Fitch Ratings said on Wednesday.
They can also weaken if there is a weaker gross refining margin or lower working capital cash flow.
A combination of these scenarios or even worse performance on an individual factor can lead to a rating downgrade, said Fitch adding this to be unlikely.
The company's rating headroom narrowed in the financial year ending March 2021 (FY21) after credit metrics worsened by more than expected as peak capex coincided with a weak gross refining margin.
Fitch expects gross refining margins to improve over FY22-FY23 supported by ongoing recovery in light distillate spreads and forecast recovery in middle distillate cracks.
However, resurgent Covid-19 infections in Asia present a risk that an improvement in refined product demand and margins may take longer than expected.
Fitch said HMEL may commission its petchem plant by 4Q FY22, contributing 250 million dollars in EBITDA including GST benefits in FY23 and 400 million dollars in FY24.
However, testing of its various units is pending, exposing profit estimates to volatility risk.
HMEL should benefit from nearly Rs 2,400 crore in working capital cash flow in FY22 as it increases its share of longer-dated creditors in overall payables and inventory levels revert to the normal two-month cycle.
However, deterioration in working capital terms could add pressure to the company's cash flow, said Fitch.
