Supreme Petrochem Credit Rating Outlook Revised to Stable by India Ratings
India Ratings has revised Supreme Petrochem's credit outlook to Stable from Positive while affirming its IND AA- rating. The revision affects the issuer rating and ₹19,000 million bank loan facilities. The change reflects weaker performance in H1, with an 18% revenue decline and EBITDA margin drop to 7.70%. A six-month delay in the ABS facility production start has impacted near-term EBITDA projections. Despite challenges, the company maintains leadership in PS and EPS markets. Future capex of ₹7,050 million is planned, including ABS expansion. The company's net debt stood at ₹191 million, with strong liquidity indicators.
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Supreme Petrochem has received a credit rating outlook revision from India Ratings and Research (Ind-Ra), which changed the company's outlook to Stable from Positive while affirming its IND AA- rating. The revision affects both the issuer rating and bank loan facilities worth ₹19,000.00 million, reflecting recent operational challenges and delayed project timelines.
Rating Action Details
India Ratings has revised its analytical approach to a full consolidated view of Supreme Petrochem and its subsidiary Xmold Polymers Pvt Ltd, following Supreme Petrochem's 80% acquisition in April 2023. The rating action encompasses multiple instruments:
| Instrument Type | Size (₹ million) | Rating Assigned | Action |
|---|---|---|---|
| Issuer Rating | - | IND AA-/Stable | Affirmed; Outlook revised to Stable |
| Bank Loan Facilities | 19,000.00 | IND AA-/Stable/IND A1 | Affirmed; Outlook revised to Stable |
Performance Challenges Drive Outlook Revision
The outlook revision reflects weaker-than-expected performance across Supreme Petrochem's existing businesses during the first half of the fiscal year. The company experienced an 18% year-on-year revenue decline due to price corrections and subdued demand from downstream sectors, particularly appliances affected by a weaker summer season and postponed purchases following goods and services tax rate reduction announcements.
| Performance Metric | 1H | Previous Period | Change |
|---|---|---|---|
| EBITDA Margin | 7.70% | 8.90% | -120 bps |
| EBITDA (₹ billion) | 1.95 | 2.85 | -31.60% |
| Net Working Capital (₹ billion) | 3.60 | 1.70 | +111.80% |
Additionally, a six-month delay in the commencement and ramp-up of production at the company's acrylonitrile butadiene styrene (ABS) facility has deferred the increase in value-added products proportion, limiting near-term visibility on EBITDA reaching ₹5.00-6.00 billion levels.
Strategic Strengths Support Rating
Despite operational challenges, India Ratings highlighted several factors supporting the rating affirmation. Supreme Petrochem maintains its leadership position in India's oligopolistic polystyrene (PS) and expandable polystyrene (EPS) markets, with market shares of approximately 56% in PS and 59% in EPS.
Key Rating Strengths:
- Leadership position in oligopolistic PS industry with business profile expected to strengthen post-ABS capacity ramp-up
- Increasing share of value-added products to offset inherent volatility in PS market
- Planned capital expenditure to continue being fully funded by internal accruals
- Strong credit profile expected to remain intact
Capital Expenditure and Expansion Plans
Supreme Petrochem expects to maintain significant capital expenditure intensity over the next few years, with budgeted spending of approximately ₹7,050.00 million. The company has historically funded large capital expenditures entirely through on-balance sheet cash and operational cash flows, with average capex intensity of around 5% over recent years.
| Capex Details | Amount (₹ million) |
|---|---|
| Budgeted for future years | 7,050.00 |
| Cumulative recent years | 14,176.00 |
| Recent half-year | 1,264.00 |
| Previous full year | 3,778.00 |
A significant portion of planned expenditure pertains to Phase 2 of the ABS expansion plan (approximately 70,000 MT capacity), estimated at ₹3,000.00-3,500.00 million. Management intends to base this capex on the pace of Phase 1 capacity ramp-up.
Financial Position and Liquidity
While Supreme Petrochem's net debt (including LC acceptances) stood at ₹191.00 million in the recent half-year, India Ratings expects this to be temporary. The elevation in net debt resulted from doubling of net working capital, primarily due to higher raw material inventory maintenance and increased LC acceptances from rising raw material imports and ongoing capex.
| Liquidity Indicators | Recent Half-Year | Previous Year |
|---|---|---|
| Cash and Current Investments (₹ billion) | 5.20 | 8.70 |
| LC Acceptances (₹ million) | 5,378.00 | 5,138.00 |
| EBITDA Interest Coverage | 31.70x | 35.60x |
The company maintains ₹1.00 billion in unutilized fund-based limits and has consistently generated positive cash flow from operations since FY05, supporting its strong liquidity position.
Outlook and Rating Sensitivities
India Ratings expects Supreme Petrochem to return to net cash positive position following normalization of working capital levels and ABS facility ramp-up in the future. The agency anticipates EBITDA recovery driven by likely price bottoming and gradual ramp-up of the higher-value ABS facility.
Positive rating action could result from sustained profitability levels of ₹5.50-6.00 billion with enhanced product diversification while maintaining the credit profile. Conversely, sustained lower-than-expected profitability, delays in ABS project ramp-up, or significant depletion of liquidity buffers could lead to negative rating action.
Historical Stock Returns for Supreme Petrochem
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +1.00% | +1.35% | -3.33% | -25.91% | -7.31% | +266.08% |
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