ICRA has upgraded the long-term rating assigned to the term loans and fund based facilities of Deepak Nitrite (DNL) aggregating to Rs 321.6 million (reduced from Rs 706.5 million) and Rs 1.362 billion (enhanced from Rs 1.262 billion) respectively from LA to LA+.

ICRA has also upgraded the short-term rating assigned to the non-fund based facilities and Commercial Paper programme of DNL aggregating to Rs 950 million (enhanced from Rs 850 million) and Rs 20 billion respectively from A1 to A1+. The long-term rating carries a stable outlook.

The upgrade in ratings takes into account the significant improvement in the capital structure of the company and its ability to successfully demonstrate the introduction of new products, especially fuel additives, which has supported revenue growth during the current fiscal and is expected to benefit the companys profitability, going forward.

The ratings also continue to reflect the long operating track record of the company in the chemical industry, diversified product mix as well as exposure to diversified end-user industries, and the leading market share enjoyed by the company in most of its products in the domestic as well as global markets.

The ratings also consider DNLs multi-purpose manufacturing facility with significant backward and forward integration linkages that provide it flexibility to change the product mix and cater to changing market requirements, and DNLs technical expertise to handle complex and hazardous chemical processes like nitration and hydrogenation.

The ratings are however constrained by exposure of companys profitability to the volatility in the prices of raw materials, most of which are derivatives of crude oil, significant competition from imports and moderate working capital intensity in the business.

Moreover, any reversal in policies mainly related to pollution control norms and tax rebates imposed during the Olympics of 2008 by the Chinese Government, could increase competition from China.

ICRA further notes that while the companys large-sized proposed greenfield project at Dahej (Gujarat) has not seen any material progress in the past year, any significant development in the project along with the extent of debt for the project that would materialize on the books of the company would remain key rating sensitivities.