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| Product | Quantum (Rs. Cr) | Long Term Rating | Short Term Rating |
| Bank Loan Ratings | 2303.20 | ACUITE AA+ | Stable | Reaffirmed | Positive to Stable | - |
| Bank Loan Ratings | 300.00 | - | ACUITE A1+ | Reaffirmed |
| Total Outstanding Quantum (Rs. Cr) | 2603.20 | - | - |
| Total Withdrawn Quantum (Rs. Cr) | 0.00 | - | - |
| Rating Rationale |
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Acuité has reaffirmed the long-term rating of ‘ACUITE AA+’ (read as ACUITE double A plus) and short term of ‘ACUITE A1+’ (read as ACUITE A one plus) on the Rs. 2603.20 Cr bank facilities of Brahmaputra Cracker and Polymer Limited (BCPL). The outlook has been revised to 'Stable' from 'Positive'.
Rationale for the rating The revision in outlook is primarily driven by a substantial increase in the price of raw material i.e, natural gas, due to the prolonged Russia-Ukraine war. As, a result, the operating margin of BCPL reduced sharply to 13.89 per cent in H1 FY2023 (Prov) as compared to 38.95 per cent in FY2022. Further, the outlook revision factors in the stagnation in the polymer prices leading to an inability to pass on the input costs to the full extent, which has also impacted BCPL’s profitability.
Nonetheless, the rating takes into account the company’s robust financial risk profile driven by reduction in debt level as the company has prepaid a significant portion of external borrowings. This prepayment was funded through large inflow of subsidies and grants from Central and State Government of Assam over the last 2 years ended FY2022. Further, the ratings also factor in the company’s strong business profile as reflected from its established presence in polymer business along with healthy operational performance and strategic linkages with leading PSUs in the oil and gas sector. The company’s manufacturing unit is continuously operating at optimum capacity during the last 2 years due to a gradually improving demand scenario for petrochemical products. |
| About the Company |
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Brahmaputra Cracker and Polymer Limited (BCPL) was incorporated in 2007 as a joint venture between GAIL (India) Limited (GAIL), Oil India Limited (OIL), Numaligarh Refinery Limited (NRL) and Government of Assam (GoA) with GAIL holding majority stake of 70.00 percent. BCPL is engaged in manufacturing of High Density Polyethylene (HDPE) and Linear Low Density Polyethylene (LLDPE) with a capacity of 220,000 tonnes per annum (TPA) and Poly-Propylene (PP) with a capacity of 60,000 TPA. The other products include Hydrogenated Pyrolysis Gasoline and Pyrolysis Fuel Oil. BCPL has its cracker complex located at Duliajan, Lakwa and Lepetkata in Assam.
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| Standalone (Unsupported) Rating |
| Not Applicable |
| Analytical Approach |
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Acuité has taken a standalone view of the business and financial risk profile of BCPL to arrive at the rating. However, Acuité has taken into account the strong parentage of the entity by way of shareholding held by GAIL.
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Key Rating Drivers
| Strengths |
| Demonstrated support from GoI and State government of Assam
BCPL is a joint venture between GAIL, OIL, NRL and GoA with GAIL holding 70.00 percent, OIL, NRL and GoA each holding 10.00 percent respectively. The company has strategic importance as it is formed under Assam Accord of 1985 to promote economic development in Assam. As per the arrangement with various shareholders, BCPL will get the raw material from OIL and NRL, the land from GoA and all the technical and operational support from GAIL. GAIL, the single largest shareholder with 70 percent stake in BCPL was incorporated in August 1984 as a central public sector undertaking (PSU) under the Ministry of Petroleum and Natural Gas (MoPNG).BCPL has signed the marketing agreement with GAIL by which all the production of BCPL will be sold by using GAIL’s marketing channels. The board of directors of BCPL comprises of representatives from all stakeholders. BCPL procures the raw materials i.e. gas from ONGC and OIL and naphtha mainly from NRL. BCPL has signed the feedstock agreement by which the pricing is governed by the Government of India. This has benefited BCPL to procure the raw materials at discounted prices compared to market rates. BCPL is exempted from paying value added tax on purchase of Natural Gas for a period of 15 years (02January 2016 to 01 January 2031) by State Government of Assam. The ownership pattern of BCPL, support from GAIL and credit rating of GAIL will remain key rating sensitivities.
Robust financial risk profile The robust financial risk profile of the BCPL is marked by its very high net worth, comfortable gearing and strong debt protection metrics. The net worth stood at Rs. 3055.11 Cr as on 31st March’2022 as compared to Rs 2576.60 Cr in the previous year. The gearing of the company was negligible at 0.04 times as on 31st March 2022 as against 0.98 times as on 31st March, 2021. TOL/TNW stood at 1.73 times in FY22 as against 3.07 times in FY21. BCPL continued to report a strong interest coverage ratio of 20.35 times as on 31st March, 2022 and debt service coverage ratio of 2.56 times as on 31st March, 2022.The Net Cash Accruals to Total Debt (NCA/TD) stood at 9.63 times in FY2022 as compared to 0.45 times in the previous year. Going forward, Acuité believes the financial risk profile will remain robust over the medium term backed by prepayment of term loan and low dependence on debt. Healthy Scale of operations The company has achieved a revenue of Rs 3458.24 Cr in FY22 as compared Rs 3432.23 Cr in FY21. Further, BCPL has achieved Rs.1431.60 Cr up to Sep, 2022 (provisional). BCPL is partially diversified based in fuel sourcing terms as the unit is 65 per cent natural gas dependent and 35 per cent Naptha dependent. Acuité believes that the sustainability in the revenue growth would be a key monitorable going forward. High entry barrier
Petrochemical business is highly capital intensive in nature and currently, there are only six players in India who have an operational cracker complex. BCPL was formed as per Assam Accord to promote economic development in the State of Assam, so the company continues to enjoy support from the Central government and GoA. This will create an entry barrier for any potential new entrant.
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| Weaknesses |
| Exposure to volatile crude oil and polymer prices
Polymer prices are linked with crude oil price fluctuations with a higher degree of volatility in the recent past. This will be further aggravated with the petrochemical sector trying to navigate through uncertain and volatile times, facing uncertain crude oil prices which is driven by multiple factors including OPEC production cuts, the sanctions on Russia and the global slowdown. Acuité expects that the revenues and margins of BCPL will remain exposed to the fluctuations petrochemical prices, the competitive landscape and demand for polymers as also the level of volatility in the feed stock prices and the import trends.
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| ESG Factors Relevant for Rating |
| Not Applicable |
| Rating Sensitivities |
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| Material covenants |
| None |
| Liquidity Position: Strong |
| Strong |
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The company has a strong liquidity position as indicated from its healthy net cash accrual of Rs 1052.4 Cr in FY2022 as against current maturity of Rs 371.3 Cr. Going forward, the cash accruals are expected to be in the range of Rs. 450-550 Cr as compared to nominal or no loan repayments from FY2023-24. Moreover the company has fund based working capital limits of Rs 350 Cr which remains unutilized. although the business is moderately working capital intensive with GCA days at 137 days as on Mar-22. Acuité expects the liquidity position of the company will remain strong over the medium term given the strong financial flexibility of the promoters and a significant inflow of subsidies and grants.
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| Outlook: Stable |
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Acuité believes that the outlook on BCPL will remain 'Stable' on account of the demonstrated support from GoI and State government of Assam, sound business position and robust financial risk profile. The outlook may be revised to 'Positive' in case of significant growth in revenue while achieving sustained improvement in operating margins, capital structure and working capital management. Conversely, the outlook may be revised to ‘Negative’ in case of decline in the company’s revenues or profit margins, or in case of deterioration in the company’s financial risk profile or further elongation in its working capital cycle.
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| Other Factors affecting Rating |
| None |
| Particulars | Unit | FY 22 (Actual) | FY 21 (Actual) |
| Operating Income | Rs. Cr. | 3458.24 | 3432.23 |
| PAT | Rs. Cr. | 690.53 | 739.90 |
| PAT Margin | (%) | 19.97 | 21.56 |
| Total Debt/Tangible Net Worth | Times | 0.04 | 0.98 |
| PBDIT/Interest | Times | 20.35 | 6.96 |
| Status of non-cooperation with previous CRA (if applicable) |
| None |
| Any other information |
| None |
| Applicable Criteria |
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• Default Recognition :- https://www.acuite.in/view-rating-criteria-52.htm • Entities In Manufacturing Sector:- https://www.acuite.in/view-rating-criteria-59.htm • Application Of Financial Ratios And Adjustments: https://www.acuite.in/view-rating-criteria-53.htm • Group And Parent Support: https://www.acuite.in/view-rating-criteria-47.htm |
| Note on complexity levels of the rated instrument |
| In order to inform the investors about complexity of instruments, Acuité has categorized such instruments in three levels: Simple, Complex and Highly Complex. Acuite’ s categorisation of the instruments across the three categories is based on factors like variability of the returns to the investors, uncertainty in cash flow patterns, number of counterparties and general understanding of the instrument by the market. It has to be understood that complexity is different from credit risk and even an instrument categorized as 'Simple' can carry high levels of risk. For more details, please refer Rating Criteria “Complexity Level Of Financial Instruments” on www.acuite.in |
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