IPCL retains CRISIL ratings following merger with six companies

CRISIL has reaffirmed its outstanding ''AAA/FAAA/Stable'' ratings on the debt instruments of Indian Petrochemicals Corporation Limited (IPCL). This follows the approval by IPCL''s board of directors for the company''s merger with Apollo Fibres Ltd., Central India Polyester Ltd, India Polyfibres Ltd, Orissa Polyfibres Ltd, Recron Synthetics Ltd, and Silvassa Industries Pvt Ltd, subject to necessary approvals.

The merging companies manufacture value added products such as poly stable fibre (PSF) and poly filament yarn (PFY). IPCL manufactures mono ethyl glycol (MEG), which is a critical raw material in the manufacture of PSF and PFY. Surplus MEG capacities globally and in India have depressed IPCL''s realisations in 2005-06. In CRISIL''s opinion, the proposed merger will benefit IPCL by providing it assured captive utilisation of MEG.

As per CRISIL''s assessment, the merger does not materially impact IPCL''s financial profile; the merger entails a share-swap and therefore, there is no cash outflow. As a part of the transaction, Rs. 7.7 billion of debt will be transferred to IPCL. However, strong cash accruals of IPCL have enabled it to reduce the debt on its books in 2005-06 (refers to the financial year April 1st to March 31st); hence IPCL''s gearing is expected to improve from 0.5 times as at March 31, 2005.

The ratings continue to reflect IPCL''s leadership position along with Reliance Industries Limited (RIL), (its largest shareholder with a 46 per cent stake) in the Indian petrochemicals industry, its integrated operations, and its strong financial profile. CRISIL expects RIL''s integrated approach in managing the petrochemicals businesses of the two companies to continue to yield benefits for IPCL. These rating strengths largely mitigate the susceptibility of IPCL''s profitability to movements in feedstock and polymer prices, and the impact of scarcity of natural gas in India.

Outlook: A strong and improving standalone financial profile lends stability to IPCL''s ratings and helps it withstand cyclicality in the petrochemicals industry. CRISIL also expects the operational benefits arising from its strong linkages with RIL to continue.

IPCL is the second-largest petrochemical producer in India: it manufactures polymers, synthetic fibre, fibre intermediates, solvents, surfactants, industrial chemicals, catalysts, and absorbents. The company has petrochemical complexes at Vadodara and Gandhar in Gujarat, and Nagothane in Maharashtra.