CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper programme of Tata Chemicals Limited (TCL).

During fiscal 2022, TCL’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin improved by 355 basis points (bps), as the consolidated revenue grew by 24% supported by volume growth across most of the applications and high realisations. In fiscal 2023, CRISIL Ratings expects the volumes and realisations to grow further, as the demand continues to remain robust, and the supply situation remains tight with no capacity addition expected in the near term. TCL is working on reducing the tenure of its sales contracts from annual or multi-year duration to quarterly or half-yearly duration, to be in a better position to pass on input cost inflation.

Among international businesses, the operations in the US and Kenya reported revenue growth of 28% and 40% respectively, while the EBITDA margin improved by more than 900 bps in fiscal 2022 in both the geographies, due to a strong bounce back in volumes, particularly export volumes and higher realisations. UK operations, however, were impacted in Q2 as the margins declined due to sudden sharp increase in carbon and energy costs.

From a debt perspective, TCL’s standalone business continues to remain debt free, while majority of the debt resides in the international businesses. Overall, gross debt (including lease liabilities) was at Rs 7,025 crore as on March 31, 2022, against Rs 6,933 crore as on March 31, 2021. Major refinancing is expected in fiscal 2023 when debt amounting to USD 228.5 million and GBP 80 million matures and will remain a key monitorable. CRISIL Ratings derives comfort from TCL’s past track record of successfully refinancing its overseas debt.

TCL’s financial flexibility continues to remain strong by virtue of being part of the Tata group. Liquidity is also cushioned by cash and cash equivalent of Rs 2,635 crore as on March 31, 2022, and quoted equity investment in other Tata group companies valued at around Rs 3,700 crore as on May 20, 2022.

The rating continues to reflect the company’s strong business risk profile, driven by its established market presence and healthy financial risk profile because of strong liquidity and financial flexibility. These strengths are partially offset by susceptibility to price volatility in the soda ash business.

For arriving at the rating, CRISIL Ratings has combined the business and financial risk profiles of TCL, Tata Chemicals Europe, Tata Chemicals North America, Tata Chemicals Magadi, and Rallis India Ltd (Rallis; ‘CRISIL AA+/Stable/CRISIL A1+’). For calculation of financial ratios, CRISIL Ratings has amortised goodwill (both arising from acquisitions as well as self-generated) over 20 years starting from fiscal 2009. A significant portion of this goodwill relates to the acquisition of General Chemical Industrial Products (GCIP), which gave TCL access to long-term trona reserves for manufacturing natural soda ash.