Chemfab Alkalis Limited — Credit Ratings, 31-01-2025: Credit Rating

India Ratings and Research has assigned Chemfab Alkalis Limited (CAL) ratings for its bank facilities: INR 300 million for fund-based working capital (IND A-/Stable/IND A2+), INR 500 million for non-fund-based working capital (IND A2+), and INR 873 million for a term loan (IND A-/Stable).

The ratings reflect CAL's comfortable consolidated business profile, characterized by a diversified product mix, including caustic soda and high-margin oriented poly vinyl chloride (OPVC) pipes. However, the operational performance weakened in FY24 and the first half of FY25 due to declining caustic soda prices, leading to a notable drop in EBITDA, which decreased from INR 1,105 million in FY23 to INR 539 million in FY24. This contraction was partially offset by the growth in the OPVC pipe segment, with sales volume surging to 5.2KT in FY24 and EBITDA rising to INR 370 million.

Despite the increase in debt from capacity expansions, CAL's credit metrics remain manageable, with net leverage rising to 1.7x as of 1HFY25 but expected to improve with strengthening cash flows from operations. The caustic soda segment is projected to recover in FY26, albeit gradually. The company needs to effectively manage the increase in operational costs and sustain profitability, particularly within the volatile commodity prices landscape.

Investor insight suggests a cautious hold on CAL shares as the company navigates through evolving market conditions and operational challenges while aiming for recovery in profitability and maintaining solid credit metrics.