Ratings agency ICRA in its latest report has said that with most basic chemical and petrochemical players having a diverse range of end-user industries, the impact of coronavirus disease (covid-19) slowdown is likely to be moderated. It noted that while the industry may face near-term headwinds, the medium to long-term credit outlook remains stable for the industry.
ICRA has stated that credit profiles of most of its rated basic chemical and petrochemical players are expected to remain resilient in the current financial year (FY21), on account of diversification of products in their portfolio, wide applications of these chemicals and manageable leveraging levels. It pointed out that despite the pronounced decline in revenues and margins in FY21, the credit profile of most incumbents is supported by their large size, strong balance sheets, healthy liquidity and strong financial flexibility.
According to the report, margins will be impacted by a decline in capacity utilisation levels resulting in lower absorption of fixed costs and an increase in overheads such as freight costs this fiscal. However, it said softer crude price and various cost rationalization exercises carried out by companies should provide some offset. In case of petrochemicals, it said demand has been impacted adversely across most products. However, it stated that decline in crude oil prices have strengthened the economics of naphtha-based crackers owing to the significant flattening of the ethylene cash cost curve.