Rationale

 The rating upgrade takes into account Panama Petrochem Ltd (PPL) healthy financial profile characterised by strong revenue growth of 44% in FY2021 on the back of growing demand from end-user industries along with improved sales realization, and comfortable capital structure and coverage indicators. ICRA expects the revenue's upward trajectory to continue and the capital structure to remain comfortable following healthy accruals and limited capex. Furthermore, at a consolidated level, the cash and bank balance stood at Rs. 74.8 crore as on March 31, 2021, which will be sufficient to fund PPL' capex requirement. The company's operating profit margin also improved to 13.2% in FY2021 compared to 5.5% in FY2020 due to cost rationalisation measures undertaken by it, focus on high margin products, higher utilisation of capacity and increase in raw material prices. Growing demand coupled with reduced competition from unorganised players following the Covid-19 pandemic also supported the revenue growth and profit margin. While ICRA expects some moderation in profit margin, it is expected to remain healthy, going forward. The ratings also consider the established track record of the company in the white oil and allied oils business, along with its strong customer base and long-term relationships with reputed companies across multiple industries. The company's product profile is well diversified across various end-user industries,such as cosmetics, ink, rubber, textiles, transformer and lubricants, thereby mitigating the risks from slowdown in any particular sector. The ratings also favourably consider the diversified manufacturing presence of the company through four manufacturing units in India that are strategically located to cater to different industrial clients for different kinds of oil. Further, the company has a manufacturing unit at Ras Al Khaimah, the UAE, under its wholly-owned subsidiary, Panol Industries RMC, which enjoys proximity to the base oil suppliers in West Asia and caters to the demand for its products in the region. There is a healthy diversification of the company's revenues in both domestic and overseas markets with about 40% of its sales coming from exports. The geographical diversification helps mitigate risks from slowdown in any particular market. The ratings are, however, constrained by the vulnerability of PPL's profitability to fluctuations in forex rates and base oil prices, which are volatile being crude oil derivatives. The company's operations are also exposed to high competition in the industry from other established and unorganised players. The company's net working capital intensity has remained moderately high; however, reducing over the last three fiscals following conscious measures undertaken by the management to reduce its receivables. The debtor days reduced from 91 days in FY2020 to 82 days in FY2021, despite Rs. 962 crore of revenues generated in H2 FY2021. The Stable outlook on the long-term rating reflects ICRA's opinion that PPL will continue to benefit from its established relationships with its reputed customers, application in diversified industries and a healthy financial risk profile.