Rationale

 The ratings assigned to Deepak Chem Tech Limited (DCTL/the company) factor in the strong parentage of Deepak Nitrite Limited {DNL, rated [ICRA]AA (Positive)/[ICRA]A1+} and its strategic importance to the latter as the company is an extended arm of the parent entity. The ratings continue to take into account the long operating track record of the Deepak Group {comprising Deepak Nitrite Limited, Deepak Phenolics Limited (DPL, rated [ICRA]AA (Positive)/[ICRA]A1+ and Deepak Chem Tech Limited} in the chemical industry, its diversified product mix and end-user industries. ICRA notes the Group’s leading market position in most product segments across the domestic and global markets. The ratings also continue to factor in the Group’s multi-purpose manufacturing facility with significant backward and forward integration with flexibility to change the product mix as per the market requirements. ICRA also notes the Group’s technical expertise to handle complex and hazardous chemical processes like nitration, hydrogenation and diazotisation. The ratings, however, will remain constrained by the exposure of DCTL’s profitability to the volatility in raw material prices for the products which the company will manufacture, going forward. ICRA notes that recently, DCTL has signed a Rs. 9,000-crore memorandum of understanding (MoU) with the Government of Gujarat on January 31, 2024, adding to the previous MoU worth Rs. 5,000 crore as on May 23, 2023, for capacity expansion of some existing products, new product addition, backward and forward integration and cost-saving measures. However, the capex comprises several smaller projects (under rated entities/subsidiaries/JV), with the execution phased over the next several years, which will mitigate the risk to some extent. Also, the company is executing projects worth around Rs. 2,000 crore (part of existing MoU worth Rs. 5,000 crore), of which majority (except one of the projects) will get commissioned by end of the current fiscal i.e. FY2025. ICRA notes that the company has commissioned a benzo tri fluoride project in March 2024.The large size of the capex exposes the Group to project implementation risks over the next couple of years. ICRA notes that the company is yet to finalise the phasing of the execution for a major part of the capex. ICRA will continue to monitor the developments on this front and it will remain a key monitorable, going forward. The Stable outlook on the long-term rating reflects ICRA’s opinion that the company’s credit profile will remain stable, driven by its parentage and the expected ramp-up of the plants which will support the cash accruals.