HPCL-Mittal Energy Limited's (HMEL) rating upgrade of its Long-Term Issuer Default Rating (IDR) to 'BB+' from ‘BB’ follows Fitch Ratings’ upward revision of HMEL’s Standalone Credit Profile (SCP) to ‘bb-’ from ‘b+’. This reflects our expectation that EBITDA net leverage will be sustained below 5.0x from the financial year ending March 2025 (FY25) to FY28. We expect HMEL’s deleveraging to be supported by lower capex intensity following the completion of its petrochemical project and the cash flow increase from the ramp-up of the petrochemical project's operations. We also expect the plant’s integration of its refining and petrochemical processes, to lead to greater cash flow stability. HMEL's IDR benefits from a two-notch uplift from its SCP, based on our assessment that its parent, Hindustan Petroleum Corporation Limited (HPCL, BBB-/Stable), has 'Medium' overall incentives to support HMEL, in line with Fitch's Parent and Subsidiary Linkage Rating Criteria. Key Rating Drivers Leverage to Improve: Fitch expects HMEL's EBITDA net leverage to drop to around 4.5x over FY25-FY26 and below 4.0x from FY27 (FY24: 5.0x). Strong EBITDA generation will be aided by utilisation improvements at the company's new petrochemical plant and lower special export duties on refined products, which will offset the ongoing weakness in petrochemical spreads and moderating refining margins. A lower capex intensity will drive positive free cash flow and deleveraging.
Source: Fitch Ratings
