ICRA downgrades rating of Himadri Speciality Chemical

Himadri Speciality Chemical said that the credit rating agency ICRA has downgraded its rating on the term loan and fund-based working capital facilities of the company to '[ICRA] A+ (Stable)' from '[ICRA] AA-'.

Concerning fund based / non-fund based working capital facilities, the company further said that the rating committee of ICRA has downgraded the long-term rating to '[ICRA] A+' from '[ICRA] AA-' and has also downgraded the short term rating to '[ICRA] A1' from '[ICRA] A1+'.

ICRA has also downgraded the short-term rating on the company's commercial paper to '[ICRA] Al' from '[ICRA] A1+'.

Offering the rating rationale, ICRA said that the ratings downgrade factors in the continued moderation in Himadri Speciality Chemical's (HSCL's) debt protection metrics due to a consistent decline in its operating margins in H1 FY2022, following a sharp decrease in FY2021 owing to reduced spreads between raw material costs and end-product realisations.

Although HSCL has ramped up its enhanced capacities and is expected to achieve a volumetric growth in FY2022, pressure on the profitability is likely to result in subdued debt protection metrics and return indicators in the near term.

While the run-up in commodity prices has dampened the profitability, nevertheless, the company is expected to renegotiate its supply contracts due for renewal in March 2022 with certain key customers, which should improve its profitability, going forward.

The long-term rating remains constrained by the cyclicality in the company's user industries viz. aluminium and steel manufacturing and the weak financial position of its overseas subsidiaries.

While HSCL's 60,000-MT specialty carbon black (CB) unit was commercialised in Q4 FY2020, the company is yet to manufacture value-added specialty products on a large scale and the specialty CB unit continues to manufacture the lower margin commodity-grade CB. Market acceptance and the consequent scale-up of these specialty CB products would provide scope for improvement in its operating margins.

The 'Stable' outlook on the long-term rating reflects ICRA's expectations that HSCL will continue to benefit from its established track record, large scale of operations and a healthy demand outlook for its products.

The company's ability to reinstate its margins to historical levels through improvement in product realisations and commencement of production of specialty carbon black remains a key rating monitorable.

Himadri Speciality Chemical is an integrated manufacturer of various carbon-based products starting from coal tar. Various distillates of the plant are used to manufacture coal tar pitch (CTP), various types of carbon blacks (CB), sodium naphthalene formaldehyde (SNF) and other advanced carbon-based materials.

The company's consolidated net profit declined 54.58% to Rs 9.41 crore on a 65.78% increase in net sales to Rs 645.29 crore in Q2 FY22 over Q2 FY21.

The scrip rose 1.71% to currently trade at Rs 47.45 on the BSE, extending gains for the second consecutive session. The stock has added 3.15% in two sessions.

On a year-to-date basis, the stock has advanced 8.22% while the benchmark Sensex has gained 23.19% during the same period.

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