Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil AA/Stable/Crisil A1+' ratings on the debt instruments and bank facilities of PCBL Chemical Ltd (PCBL; formerly known as PCBL Limited).

 

The rating factors in the market leadership position of PCBL in the domestic carbon black (CB) industry, along with its increasing global footprint, healthy operating efficiency and financial risk profile. The business risk profile is also supported by diversification into the specialty chemicals segment, achieved through acquisition of Aquapharm Chemicals Pvt Ltd (ACPL) in January 2024, through 100% subsidiary, Advaya Chemical Industries Ltd (scheme of amalgamation of ACPL with Advaya Chemical Industries Ltd effective from January 1, 2025).  These strengths are partially offset by susceptibility of operating profitability to fluctuations in crude oil prices and foreign exchange (forex) rates and exposure to competition from imports, risk of large capex and cyclicality in the automobile industry. However, the forex risk is reduced as the company hedges most of its net forex exposure at all points of time. Furthermore, a significant portion of sales are derived from the tyre segment, which operates as per the pricing formula linked with crude oil prices, thereby protecting operating profit, if the volume is maintained.

 

On a consolidated basis, the company achieved revenue of Rs 4,307 crore in the first half of fiscal 2025 and is expected to surpass Rs 8,500 crore for the full fiscal, and thus, sustain the low double-digit growth momentum over the medium term. Operating margin stood at 16.8% in the first half of fiscal 2025, and should sustain at 16.5-17% over the medium term. The Ebitda per tonne  of the carbon black business rose to around Rs 19,350 in fiscal 2024, from around Rs 16,500 in fiscal 2023, due to increase in share of specialty carbon black and exports. Going forward, Ebitda/tonne is expected to remain at around Rs 20,000; supported by increasing share of specialty carbon black and exports.

 

Under ACPL business segment, the company has achieved revenue of ~Rs 720 crore in the first six months of fiscal 2025 (around 17% of consolidated revenue) with operating margin of 13.2%. While revenue growth and margins are expected to remain rangebound in fiscal 2025, increase in volume and plant capacity utilisation from fiscal 2026 should drive growth in revenue and margin. The performance of the ACPL business has remained moderate due to slowdown in demand from US and Europe. However, the situation is expected to gradually recover over the medium term.

 

Though the business risk profile has strengthened, the financial risk profile has temporarily moderated along expected lines due to the large, debt-funded acquisition and the same is expected to improve gradually over the medium term. Capital structure will remain adequate with networth and gearing projected to be over Rs 3,000 crore and 1.6 times as on March 31, 2025. Also, the company has issued warrants of Rs 448 crore to the promoters and received Rs 112 crore in the first half of fiscal 2025 and balance Rs 336 crore is expected by November 2025. Debt protection metrics may remain moderate in fiscal 2025, with debt/Ebitda expected at around 3.25 times; but expected to drop below 3 times by fiscal 2026.

 

The company had cash and cash equivalents of Rs 295 crore as on September 30, 2024 and is expected to maintain cash equivalents of around Rs 400 crore in the medium term. Additionally, it has total fund-based credit lines of Rs 900 crore. Bank limit utilisation averaged less than 60% of the drawing power for the 12 months ended September 30, 2024.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of PCBL and all its subsidiaries, to the extent of its shareholding, given the significant business and financial linkages and common management.

 

Crisil Ratings has also amortised the goodwill and other intangible assets of around Rs 3,340 crore arising from acquisitions made in January 2024, over five fiscals starting 2024.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Market leadership position in the domestic CB industry: PCBL is the largest player in the domestic CB market, with market share of around 40% in terms of capacity, and is the seventh largest manufacturer of CB globally. The company has a production capacity of 790,000 tonne per annum (TPA). Revenue has grown by nearly 13% in compounded terms over the five fiscals till March 31, 2024.

 

PCBL manufactures over 85 grades of rubber CB and specialty black. It remains focused on high-performance and high-margin products under CB and specialty black. The company caters to large tyre manufacturers and has established relationships with them. The tyre segment has contributed 49% to the overall volume in the first half of fiscal 2025. Large scale of operations, coupled with timely and high-quality service, enables the company to keep healthy relationships with key customers.

 

• Increasing global footprint and diversification with specialty chemical business: It is the largest exporter of CB in India with operations across more than 50 countries. Exports contributed to nearly 40% of revenue in the first six months of fiscal 2025, up from around 30% in fiscal 2023.

 

ACPL enjoys a strong market position in the business of manufacturing specialty water treatment solutions such as phosphonates, chemicals used in oil and gas sector, and polymers. It caters to reputed global customers across diverse end-markets. It is the largest manufacturer of phosphonates in India and the third largest in the world. The acquisition led to diversification of PCBL’s product portfolio into the high-margin specialty chemicals business, with a wider geographical reach.

 

• Healthy and improving operating efficiency: PCBL benefits from the strategic location of its manufacturing facilities. Its four facilities are located near ports with easy access to raw material, lowering the logistic cost. PCBL imports 70-80% of its raw material and exports 35-40% of its products. The company also has power plants at all its facilities, which use tail gas generated in the thermal decomposition process for making CB. The company sells 50-60% of the power generated.

 

Operating margin stood at 16.8% in the first half of fiscal 2025 and is expected to be in the range of 16.5-17% in fiscal 2025. Although the margin has fluctuated between 13% and 19% in the past five years, operating Ebitda per tonne has been healthy and rose to around Rs 20,700 per tonne in the first half of fiscal 2025, from Rs 11,000 per tonne in fiscal 2020.

 

Speciality CB is a value-added product that generates a higher profit margin than regular CB products. Share of specialty black in the sales volume rose to around 11% in fiscal 2024, from around 5% in fiscal 2020, and is expected to gradually increase in the coming fiscals. This increase should boost the operating margin.

 

Weaknesses:

• Susceptibility to volatility in crude oil prices and forex rates: CB feedstock (CBFS), derived from crude oil, is a major raw material for CB production. Any increase in crude oil prices may drive up CBFS prices, and thus, increase the operating cost of players. However, the company has a pricing formula linked to crude oil prices for the tyre segment, which accounts for a significant proportion of sales, thereby protecting operating profit, if the volume remains steady. The company imports 70-80% of raw material and is vulnerable to volatility in forex rates. This is largely mitigated by a natural hedge because of exports and a stringent hedging policy. Since fiscal 2016, the increasing share of specialty black in sales and improving yields and input-output ratio have helped reduce volatility in operating profitability.

 

• Risk associated with large size ongoing capex: The company has large capex plans in the medium to long term. It is expected to incur capex of Rs 600-700 crores per annum in the medium term, towards expansion of capacities in carbon black and specialty chemical business (ACPL). The company completed the greenfield capacity expansion of CB with capacity of 147 KTPA in fiscal 2024, which has been optimally utilised. The company further has plans to increase brownfield capacity in Chennai with 30 KTPA in fiscal 2025, and 60 KTPA by fiscal 2026. The company is also expected to increase capacities of specialty chemicals (ACPL) by 38 KTPA in fiscal 2025. The company will also infuse Rs 350-400 crore ($44 million) in phases over the next two years for setting up manufacturing facilities to develop nano-silicon products for use in anodes of Li-Ion batteries. Furthermore, the company has been allotted a land parcel by the government of Andhra Pradesh and plans to set up greenfield CB manufacturing plants in phases. The capex will be funded through a mix of debt and internal accrual. The company is exposed to implementation related risk and timely progress of capex; any cost and time overruns and achievement of optimal capacity utilisation levels, as per expectations, will be monitorable.

 

• High susceptibility to cyclicality in the automobile industry: Demand for domestic CB depends on growth of the tyre industry, as tyre manufacturers consume nearly 65% of overall CB produced in India. PCBL generated around 60% of its revenue from the tyre industry in fiscal 2024. Hence, CB revenue could be impacted by sluggish demand from tyre manufacturers, owing to slowdown in demand from automobile original equipment manufacturers (OEMs), shutdown of tyre dealerships or automobile service stations, as seen during the Covid-19 pandemic, which affected aftermarket sales for tyres. That said, 60-65% of the tyre demand is from the aftermarket, which is generally more resilient than OEM demand.

Liquidity: Strong

The company had cash and cash equivalents of Rs 295 crore as on September 30, 2024. The company is expected to maintain cash equivalents of over Rs 400 crore in the medium term. Additionally, it has total fund-based credit lines of Rs 900 crore. Bank limit utilisation averaged less than 60% of the drawing power for the 12 months ended September 30, 2024. Healthy cash accrual of Rs 650-850 crore, should suffice to cover the debt obligation of Rs 550-700 crore in fiscals 2025 and 2026. Healthy cash accrual will be sufficient to fund the repayment obligations in the medium term.

 

Environment, social and governance (ESG) profile

Crisil Ratings believes that PCBL’s ESG profile supports its already strong credit risk profile. The sector has a moderate environmental and social impact, primarily driven by high water consumption, waste-intensive processes and direct impact on the health and well-being of its customers.

 

Key highlights:

 

• The company plans to minimise its environmental impact by reducing resource consumption, mitigating greenhouse gas emissions, conserving water, managing waste responsibly, and adopting sustainable practices throughout its operations. It has set an ambitious target of reducing net CO2 emissions by 15% by fiscal 2030, with fiscal 2021 as the baseline year.
• Their plants are zero liquid discharge (ZLD) compliant and equipped with effluent treatment plant (ETP) facilities. The wastewater generated during the manufacturing processes is treated and reused, promoting water conservation.
• The company has achieved zero LTIFR (lost time injuries frequency rate) in fiscal 2024. It has addressed 100% of the customer grievances.
• The governance structure is characterised by effectiveness in board functioning and enhancing shareholder wealth, presence of investor grievance redressal mechanism and extensive disclosures.

 

ESG is gaining importance among investors and lenders. PCBL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook: Stable

PCBL will continue to benefit from its established market position in the domestic CB industry, increasing global footprint, healthy cash generation and adequate financial flexibility

Rating sensitivity factors

Upward factors:

• Higher-than-expected operating profit or pre-payment of debt resulting in improvement in debt/operating EBITDA below 1.5 times on sustained basis
• Material improvement in consolidated scale of operations and diversification through seamless integration of acquired business

 

Downward factors:

• Considerable weakening of operating performance due to intense competition and/or sluggish demand impacting operating profitability and cash accrual
• Higher-than-expected debt-funded capex or acquisitions, leading to debt to operating EBITDA ratio remaining above 3-3.25 times on a sustained basis

About the Company

Incorporated in 1960, PCBL manufactures CB. It has five plants - one each in Durgapur, West Bengal; Mundra and Palej, Gujarat; Kochi, Kerala; and Chennai, Tamil Nadu, with aggregate capacity of 790,000 TPA. The company also operates 122-megawatt cogeneration power plants based on gas generated in the CB manufacturing process. PCBL is a part of the Kolkata-based RP-Sanjiv Goenka group.

 

The company has acquired ACPL in January 2024 through Advaya Chemical Industries Ltd. Also, the scheme of amalgamation of ACPL with Advaya Chemical Industries Ltd has been effective from January 1, 2025. It is the largest producer of phosphonates in India and the third largest in the world with capacity of 130 KTPA.

 

The company has formed a joint venture with Kindia to develop nano-silicon products for Li-Ion batteries- Nanovace Technologies Ltd. PCBL holds 51% and Kindia holds 49% in Nanovace Technologies.

 

The company achieved revenue of Rs 4,306 crore and operating margin of 16.8% in the first half of fiscal 2025.

Key Financial Indicators

As on / for the period ended March 31		2024	2023
Operating income	Rs crore	6424	5776
Reported profit after tax (PAT)	Rs crore	491	442
Adjusted PAT*	Rs crore	380	442
Reported PAT margin	%	7.64	7.7
Adjusted debt/adjusted networth	Times	1.5	0.3
Adjusted interest coverage	Times	5.84	14.32

*Adjusted for amortisation of goodwill and intangibles created due to acquisition of ACPL in fiscal 2024.

Any other information: Not Applicable