Rationale

 The reaffirmation of the ratings of Apcotex Industries Limited (AIL) factors in the healthy growth in its volumes in FY2024, driven by the change in product and customer mix and increase in exports, and ICRA expects the trend to continue, going forward. The ratings continue to draw comfort from AIL’s healthy capital structure, despite the addition of debt for the capex, owing to a strong tangible net worth. The company’s liquidity profile has remained comfortable due to its healthy operational cash flows and the availability of cash and investments of around Rs. 120 crore as on March 31, 2024. The ratings draw comfort from AIL’s strong market position in the synthetic rubber and synthetic latex segments in India and the experience of its promoters of more than three decades in the industry. The ratings factor in the company’s diversified customer base across various end-user industries. The operating margins have moderated over the last year, largely in the synthetic rubber segment, which along with the inventory losses caused by the correction in raw material prices have weakened the debt metrics to some extent. However, the debt metrics continue to be comfortable and are expected to improve, going forward. The profitability is likely to remain depressed for a few more quarters amid weak demand for a few products. The low demand has constrained the capacity utilisation of the new facilities and, hence, the return metrics have also moderated. ICRA notes that the company has been regularly incurring capex in the last few years for debottlenecking, improving the efficiency and increasing the capacities. It has further completed detailed engineering to enhance its capacity for nitrile butadiene rubber (NBR); however, any further capex decision will be taken only after the current operations stabilise. Further, the ratings factor in the vulnerability of its profitability to high volatility in raw material prices (primarily styrene, butadiene, and acrylonitrile) and the adverse foreign exchange (forex) movements due to significant raw material imports, along with competition from other suppliers. However, the exchange risk is partly mitigated by the natural hedge from its exports.