CRISIL has upgraded its ratings on the bank facilities of Diamines & Chemicals Ltd (DACL) to ?BBB/Stable/P3+? from ?BBB-/Stable/P3?. The upgrade reflects significant scale-up in DACL?s operations: the company?s sales are estimated to have grown by 80 per cent in 2010-11 (refers to financial year, April 1 to March 31) over the previous year, with net sales of about Rs.800 million.

The healthy growth in sales has been driven primarily by improved availability of raw material, and healthy demand from old and new customers. Moreover, the company has maintained a comfortable financial risk profile, with gearing estimated at less than 1 time as on March 31, 2011. The upgrade also factors in CRISIL?s belief that DACL will maintain its financial risk profile despite its capital expenditure (capex) plans of Rs.170 million for the medium term.

The ratings continue to reflect DACL?s established market position in the ethylene amines (EAs) segment, and its above-average financial risk profile marked by healthy gearing and debt protection metrics. These rating strengths are partially offset by DACL?s exposure to risks related to volatility in raw material prices, to supplier and product concentration, and working capital intensity in operations.

Outlook: Stable

CRISIL expects DACL to maintain its business and financial risk profile, supported by improving scale of operations and healthy operating profitability. The outlook may be revised to ?Positive? if the company?s revenues grow substantially, following diversification into manufacture of ethylene diamine (EDA), while maintaining its operating profitability;and if its raw material supplier concentration reduces, ensuring higher capacity utilisation. Conversely, the outlook may be revised to ?Negative? if its gearing and debt protection measures deteriorate on account of large, debt-funded capex or its operating profitability declines resulting in pressure on liquidity.