Rationale

 The ratings reaffirmation factors in Panama Petrochem Ltd's (PPL) healthy financial profile characterised by strong revenue growth in H1 FY2022 on the back of growing demand from end-user industries along with improved sales realisation, and its 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 capital expenditure (capex). PPL's operating profit margin also improved to 14.3% in H1 FY2022 compared with 13.2% in FY2021, due to the company's cost rationalisation measures, 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 pandemic also supported its revenue growth and profit margin. While ICRA expects some moderation in PPL's 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, mitigating the risks of a slowdown in a particular sector. The ratings also favourably consider PPL's diverse manufacturing presence with four manufacturing units in India strategically located to cater to different industrial clients for different kinds of oil. Further, the company has a manufacturing unit at Ras AI 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 PPL's revenues in both the domestic and overseas markets, with about 45% of its sales coming from exports. The geographical diversification helps mitigate the risks of a slowdown in any market. The ratings are, however, constrained by the vulnerability of PPL's profitability to the fluctuations in forex rates and base-oil prices, which are inherently volatile being crude oil derivatives. The company's operations are also exposed to increased competition in the industry from other established and unorganised players. The company's net working capital intensity has remained moderately high; however, it has witnessed some moderation in the last three fiscals following the steps taken by the management to reduce its receivables. The Stable outlook on the long-term rating reflects ICRA's opinion that PPL will continue to benefit from its established relationships with reputed customers, application in diversified industries and a healthy financial risk profile