Rationale

 The ratings reflect the majority ownership (51.9%) of Indian Oil Corporation Limited (IOC) (rated [ICRA] AAA(stable)/[ICRA]A1+) in Chennai Petroleum Corporation Limited (CPCL) and strong business linkages, particularly with respect to imported crude oil sourcing and product off-take. ICRA believes IOC would support CPCL to meet its financial obligations, should the need arise. CPCL remains strategically important to IOC as the latter meets its product requirements for the South Indian market from the former. Further, the rating also reflects CPCL's established position in the refining business. The rating, however, also considers the vulnerability of the company's profitability to global refining margin cycle, import duty protection, and INR-USD parity levels. The gross refining margins (GRMs), however, witnessed healthy recovery in FY2021 with the overall GRM improving to $7.1/bbl in FY2021 from -$1.2/bbl in FY2020. This was primarily supported by inventory gains, which witnessed some moderation to $5.68/bbl in Q1 FY2022. The company is also exposed to project implementation risks as CPCL is in the midst of a capex cycle; however, the risk is significantly mitigated by CPCL's track record of successfully implementing several large projects. The refinery capacity utilisation was subdued at ~72% in FY2021 by the impact of the pandemic in H1 FY2021; although there was recovery in H2 FY2021. Due to the adverse impact of the second wave of the pandemic, the capacity utilisation remained subdued at 71% in Q1 FY2022. The Stable outlook on the [ICRA]AAA rating reflects ICRA's opinion that CPCL will continue to benefit from its strategic importance to the IOC Group and its favourable geographic location.