Rating Rationale
December 12, 2018 | Mumbai
Brahmaputra Cracker and Polymer Limited
Ratings upgraded to 'CRISIL AA-/Stable/CRISIL A1+'
 
Rating Action
Total Bank Loan Facilities Rated Rs.2603.2 Crore
Long Term Rating CRISIL AA-/Stable (Upgraded from 'CRISIL A+/Stable')
Short Term Rating CRISIL A1+ (Upgraded from 'CRISIL A1')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its ratings on the bank facilities of Brahmaputra Cracker and Polymer Limited (BCPL) to 'CRISIL AA-/Stable/CRISIL A1+' from 'CRISIL A+/Stable/CRISIL A1'.
 
The upgrade reflects expectation of improvement in the company's business risk profile over the medium term. The company reported healthy capacity utilisation of more than 100% in first half of the current fiscal as issues related to plant stabilisation and availability of feedstock have been resolved. Operating profit was at Rs 285 crore on net sales of Rs 1,510 crore in the first half of current fiscal. With healthy capacity utilisation levels, the financial risk profile is also expected to improve over the medium term.
 
The ratings continue to reflect technical, managerial, and financial support that BCPL derives from its parent company, GAIL India Ltd (GAIL; rated 'CRISIL A1+'), and the strategic location in the north-eastern region. These rating strengths are partially offset by average though improving debt protection metrics, and susceptibility of operating profitability to availability of natural gas and volatility in spreads between the pricing of feedstock and finished products.

Analytical Approach

For arriving at the ratings, CRISIL has applied its parent notch-up framework to factor in the extent of support available to BCPL from GAIL. As per Ind-AS, GAIL has treated BCPL as an associate and has not consolidated BCPL with itself for fiscals 2017 and 2018. That's mainly because GAIL does not have majority representation on BCPL's board. However, based on the articulation of continued support from GAIL and common chairperson, CRISIL continues to factor in GAIL's support for arriving at the ratings on BCPL. CRISIL believes that BCPL will, in case of exigencies, receive distress support from its parent GAIL for timely repayment of debt obligation, considering corporate guarantee extended by GAIL for certain loans (o/s Rs 582.36 crore as on March 31, 2018) taken by BCPL. Besides, GAIL has 70.74% stake in BCPL and investments amounting Rs 992 crore as on March 31, 2018. BCPL also receives operational and managerial support from GAIL.
 
CRISIL has treated capital subsidy of around Rs 4,795 crore (as on March 31, 2018) received from the Government of India (GoI) as part of the networth.

Key Rating Drivers & Detailed Description
Strengths
* Technical, managerial and financial support from GAIL
As of March 31, 2018, GAIL had infused equity of Rs 992 crore as part of its equity contribution towards the project. The company leverages its parent's established position in the domestic gas transmission and trading industry to negotiate term loan rates with banks and other financial institutions. Furthermore, the company has entered into a marketing/offtake agreement with GAIL for its entire production. The board of directors has representatives of GAIL, including the chairman. GAIL is likely to continue to support BCPL because of the latter's strategic importance.
 
* Improvement in capacity utilisation and strategic location in the north-eastern region
Capacity utilisation improved to more than 100% in the first half of current fiscal (78% in fiscal 2018) as issues related to plant stabilisation and inadequate availability of feedstock have been resolved. At present, BCPL is able to extract required amount of feedstock from natural gas supplied by Oil India Ltd and Oil and Natural Gas Corporation Ltd. Furthermore, the required quantity of naphtha is being supplied by Numaligarh Refinery Ltd (NRL; 'CRISIL AAA/Stable/CRISIL A1+') by sourcing it from other refineries.  BCPL was set up in accordance with the Assam Accord signed on August 15, 1985, to promote industrial and economic development in Assam. As such, the project is of strategic importance to both GoI and the Government of Assam (GoA).
 
Weakness
* Average though improving debt protection metrics
Constrained profitability along with high debt has led to average debt protection metrics with interest coverage ratio expected to remain at more than 2 times and net cash accrual to adjusted debt ratio at around 9% over the medium term. With healthy capacity utilisation levels, the financial risk profile is also expected to improve over the medium term.
 
* Susceptibility of operating profitability to availability of natural gas and volatility in spreads between the pricing of feedstock and finished products
The plant is designed to operate on feedstock which should constitute 68% natural gas and 32% naphtha, natural gas being more remunerative. However, the plant is facing shortfall in gas supply and therefore, more naphtha is being used leading to higher cost of production. Hence, availability of natural gas will remain a key monitorable. The company operates in the volatile and cyclical petrochemicals industry. Profitability will remain vulnerable to volatility in spreads between the pricing of feedstock (naphtha and gas) and finished products.
Outlook: Stable

CRISIL believes BCPL will continue to benefit from strong technical, managerial, and financial support from GAIL. The company's operating and financial performance is expected to improve in the medium-term driven by healthy utilization levels and overall healthy demand outlook for the petrochemical sector.
 
Upside scenario
* Significant improvement in cash accrual led by higher-than-expected revenue growth and profitability resulting in improved ROCE (return on capital employed) levels
 
Downside scenario
* Less-than-anticipated support from GAIL
* Low capacity utilisation, resulting in lower cash accrual, thereby deteriorating the financial risk profile
* Weakening of credit metrics, due to higher debt resulting from capital expenditure (capex)
 
Liquidity: Adequate
BCPL has adequate liquidity, driven by expected cash accrual of more than Rs. 300 crore per annum in fiscals 2019 and 2020. It also has access to fund based limits of Rs. 272 crore, utilized at 78% on an average over the 8 months through August 2018. The company has long term repayment obligation of Rs. 205 crore in fiscal 2019 and Rs 286 crore in fiscal 2020. The company has capex plans of Rs 350-400 crore over the next three fiscals through fiscal 2021. Thus, internal accrual and unutilised bank lines should be sufficient to meet its repayment obligations as well as incremental working capital requirements. The parent is expected to provide need-based support, in case of exigencies.

About the Company

BCPL was set up in accordance with the Assam Accord signed on August 15, 1985, to promote industrial and economic development in Assam. The company has set up an integrated petrochemical complex with dual-feed technology at Lepetkata, Assam. As on March 31, 2018, GAIL held 70.74% stake in the company while Oil India Ltd (10.11%), NRL (10.11%), and GoA (9.04%) held the remaining stake.
 
BCPL has a capacity of 220,000 tonne per annum (tpa) of polyethylene (PE) products (high-density PE/linear low-density PE) and 60,000 tpa of polypropylene (PP). It commissioned its PP unit in June 2015 and PE unit in January 2016, which was inaugurated by the Prime Minister of India on February 5, 2016.

H1 fiscal 2019- In the first half of the current fiscal, BCPL's adjusted* net loss stood at Rs 38 crore on net sales of Rs 1,510 crore.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 1,804 709
Profit after tax (PAT) Rs crore (253)* (735)*
PAT margin % (13.6) NA
Adjusted debt/adjusted networth Times 0.71 0.68
Interest coverage Times 1.29 (0.48)
*Other income of Rs 173 crores in fiscal 2018 (Rs 187 crore in fiscal 2017) on account of capital subsidy over the life of useful assets has been reduced from PAT as this has been considered as part of the networth.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon rate (%) Maturity Date Issue Size
(Rs Cr)		 Rating assigned
with outlook
NA Cash Credit & Working Capital demand loan ^ NA NA NA 350 CRISIL AA-/Stable
NA Term Loan* NA NA Jun-25 2003.20 CRISIL AA-/Stable
NA Short Term Loan NA NA NA 250.00 CRISIL A1+
* Includes sublimit of Rs. 500 crore for non-fund based facility
^ Includes the following sub-limits:
  1. LC limits (Inland & Foreign): Rs.90 Crore
  2. BG limits (Inland): Rs. 10 Crore
  3. Forward contract/ derivative limit: Rs.1.4 Crore
 
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  2603.20  CRISIL AA-/Stable/ CRISIL A1+  13-04-18  CRISIL A+/Stable/ CRISIL A1  17-03-17  CRISIL A+/Stable/ CRISIL A1  29-02-16  CRISIL A+/Stable  30-06-15  CRISIL A+/Stable  CRISIL A+/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit & Working Capital demand loan^ 350 CRISIL AA-/Stable Cash Credit & Working Capital demand loan^ 350 CRISIL A+/Stable
Short Term Loan 250 CRISIL A1+ Short Term Loan 250 CRISIL A1
Term Loan* 2003.2 CRISIL AA-/Stable Term Loan* 2003.2 CRISIL A+/Stable
Total 2603.2 -- Total 2603.2 --
* Includes sublimit of Rs. 500 crore for non-fund based facility
^ Includes the following sub-limits:
  1. LC limits (Inland & Foreign): Rs.90 Crore
  2. BG limits (Inland): Rs. 10 Crore
  3. Forward contract/ derivative limit: Rs.1.4 Crore
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Petrochemical Industry
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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