The agency has also affirmed the company’s short term rating at ‘[ICRA] A2+’.
ICRA stated that the reaffirmation of the ratings factor in The Andhra Petrochemicals’ (APL) established track record in manufacturing oxo-alcohols in India and its financial risk profile characterised by healthy capital structure and comfortable coverage metrics.
The company’s long-term debt is nil, and its working capital utilisation is low. The liquidity profile has remained strong with healthy unencumbered cash & cash equivalents of nearly Rs 350.15 crore as on 31 March 2024, along with liquid investments of Rs 64.46 crore.
ICRA also notes that the company benefits from the trade protection measures, such as the anti-dumping duty (ADD) imposed on several countries for the import of NBA and 2EH, and the duopoly in the domestic oxo-alcohol market with Bharat Petroleum Corporation (BPCL) being the other player. ICRA also takes note of APL being a part of The Andhra Sugars Group.
The ratings are constrained by the exposure of APL’s profitability to the fluctuation in the spread between oxo-alcohols and feedstock.
The operating margins declined sharply in FY2023 owing to the reduction in the spreads after product prices dropped because of subdued global demand, though there is recovery in margins since Q2 FY2024 resulting in improved margins in FY2024.
However, the margins remain exposed to continued weak global demand scenario. Moreover, APL is exposed to force majeure risk because of its dependence on a single supplier (HPCL) for the key raw material, propylene.
ICRA notes that in the last three years, in times of requirement and healthy margins, the company has been procuring the raw material from BPCL-Kochi and Gas Authority of India Limited (GAIL)-Pata, though at a higher cost, which provides some diversification.
ICRA also notes that the company’s earlier planned sizeable proposed capex plans to set up facilities for the production of value-added products are on hold until there is a sustained improvement in the global scenario.
The company has moderate capex plans in the near term towards value-added product, to be funded by internal accruals.
The Andhra Petrochemicals (APL)is one of the two producers of oxo-alcohols in India. Oxo-alcohol is primarily used as a raw material to manufacture PVC plasticisers. APL’s factory is located adjacent to HPCL’s Visakhapatnam refinery, with which it has entered into a long-term contract for the procurement of propylene, the key raw material in the manufacturing process.