CARE Ratings upgrades credit ratings of Panama Petrochem

CARE Ratings has upgraded the credit rating on the bank facilities of Panama Petrochem worth Rs 649 crore, on the basis of recent developments including operational and financial performance of the company.

CARE Ratings has upgraded the rating of the company's long-term bank facilities to 'CARE A; Stable' from 'CARE A-; Stable'. It has also upgraded the ratings on the company's short-term bank facilities to 'CARE A1' from 'CARE A2+'.

CARE Ratings said that the revision in the ratings assigned to the bank facilities of Panama Petrochem (PPL) factors in the significant improvement in operating performance in FY21.

PPL's total operating income grew by 44% in FY21 and operating profitability margins improved to 13.44% in FY21 from 5.61% in FY20.

The improvement in performance is driven by supply imbalances in the industry owing to import restrictions imposed due to COVID-19 thus, diverting demand to domestic players, further several cost reduction measures adopted by the company to rationalize cost and lower raw material prices aided margins.

CARE believes that despite the moderation in operating margins going forward with normalcy of economic activities however, the margins are expected to remain above the historical levels supported by sustenance of the cost reduction measures adopted by the company.

The ratings further, derive strength from the improvement in the liquidity profile of PPL with substantial improvement in gross cash accruals and reduced working capital utilization driven by controlled working capital management. This has also resulted in building up of a liquidity back-up in the form of unencumbered cash and bank balance of Rs. 74.49 crore as on 31 March 2021. Healthy profitability and low cost of overall debt with lower debt utilization resulted in improved coverage indicators in FY21.

The ratings continue factor in the extensive experience of the promoters in the petrochemical industry with diverse product offerings, long-standing relationship with reputed clientele and track record of consistently catering to them over the years.

The ratings continue to be partially offset by PPL's profit margins susceptible to volatility in the key raw material prices which are crude derivatives, foreign exchange fluctuations and high competition from established players

Panama Petrochem (PPL) is engaged in the business of manufacturing of petroleum derivative products which find application in industries such as cosmetics & pharmaceuticals, inks/coatings, textiles, automobile, power, engineering, and rubber.

The company's consolidated net profit surged to Rs 60.01 crore in Q4 FY21 from Rs 6.37 crore in Q4 FY20. Net sales increased by 134.01% YoY to Rs 541.87 crore during the quarter.

The scrip surged 8.98% to Rs 266.45, extending gains for fifth day. The stock has added 13.04% in five sessions, from its recent closing low of Rs 235.10 recorded on 29 June 2021.

On a year-to-date (YTD) basis, the stock has zoomed 168.69% while the benchmark Sensex has added 10.95% during the same period.

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