Ind-Ra assigns I G Petrochemicals ‘IND BBB+’; Outlook Stable
July 2014: India Ratings & Research (Ind-Ra) has assigned I G
Petrochemicals Limited (IGPL) a Long-Term Issuer Rating of ‘IND
BBB+’. The Outlook is Stable. A list of additional rating
actions is at the end of this commentary.
KEY RATING DRIVERS
Long Track Record and Market Leader: IGPL is one of the leading manufacturers of Pthalic Anhydrate (PAN) and according to the company’s management it has a market share of around 45%-50%. IGPL also has a long track record of over two decades in the same line of business.
Capex and Benefits: IGPL completed capex of INR2,350m in Q3FY14, it was funded through a mix of debt and internal accruals and used to expand its PAN capacity to 1,66,110 metric tonnes per annum (MTPA) and to undertake process improvements to achieve operating efficiency.
IGPL also re-engineered its production process to reduce consumption of furnace oil by 50% from average FY13 levels. The company has also set up a Benzoic Acid Recovery Plant through which it will recover 1,000mtpa from effluent. As a result of these process improvements, IGPL would benefit by around INR340m-INR360m per annum at EBITDA level.
Moderate Credit Metrics: IGPL has moderate credit metrics with leverage (net adjusted debt/EBITDAR) of 3.4x at FYE14 (FY13: 2.9x) and EBITDA interest coverage of 2x (3.4x). Leverage increased in FY14 due to debt led capex undertaken by the company. Ind-Ra expects leverage to improve going forward with accrual of benefits from capex in FY15.
Strong Liquidity: IGPL’s liquidity is strong with average 65.8% use of its fund-based limits for the 13 months ended June 2014. IGPL’s net working cycle is low due to higher payable days, its net working capital cycle was one day in FY14 as compared to two days in FY13. Ind-Ra expects the company’s net working capital cycle to remain at around the same level going forward.
Cash flow from operations was positive during the last four years, however free cash flows were negative over the last two years due to high capex. Ind-Ra expects cash flow from operations to remain positive and free cash flow to turn positive in the absence of capex. Debt repayment is also comfortable and will likely be funded through internal accruals.
Raw Material Volatility and EBITDA margins: IGPL’s EBITDA margins have been volatile in the last four years due to raw material price fluctuations (FY11:7%, FY14:5%). IGPL’s main raw material is Ortho-Oxylene which is a crude derivative and its price is mainly driven by crude prices. However, Ind-Ra expects EBITDA margins to improve due to the cost benefit measures adopted by the company.
Positive: Sustained improvement in EBITDA margins leading to net debt/EBITDA of below 2x and FFO interest coverage exceeding 3.5x would be positive for the ratings.
Negative: Limited improvement in EBITDA margins leading to net debt/EBITDA of above 3.5x on a sustained basis would be negative for the ratings.
was incorporated in 1988 by the Dhanuka family and the company
commenced production in 1992. The company is a leading producer of
PAN which is used in manufacturing plasticizers, essential for PVC
products, shoe soles, cables, pipes and hoses, leather cloth, films
for packaging and other products.
At FYE14, IGPL reported a revenue of FYE14 INR12,043m (FY13:INR9,703m),and its total debt stood at INR2,088m (INR1718m). The total installed capacity of PAN was 1,66,110mtpa at end-FY14.
- Long-Term Issuer Rating: assigned ‘IND BBB+’; Outlook Stable
- INR200m Total fund-based limits: assigned ‘IND BBB+’
- INR50m Total proposed fund-based limits: assigned ‘IND BBB+(exp)’
- INR2535m Non-fund-based limits: assigned ‘IND A2+’
- INR815m Total proposed non-fund-based limits: assigned ‘IND A2+ (exp)’
- INR1250m Total long term loans: assigned ‘IND BBB+’
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