ICRA has upgraded the rating assigned to the Rs. 54.53 crore term loans (enhanced from Rs. 20.5 crore) and the Rs. 35.98 crore fund-based limits (enhanced from Rs. 32.5 crore) of Oriental Carbon & Chemicals Limited (OCCL) to LBBB+ from LBBB.

The outlook on the long-term rating is "stable". ICRA has also upgraded the rating assigned to the Rs. 14 crore non-fund based limits of OCCL to A2+ from A2.  The revision in the ratings reflects improvement in the business risk profile of OCCL on account of measures taken to pass on the raw material price rise to the customers in a timely manner and reduction in power cost due to increased sourcing from relatively cheaper power from the grid. The upgrade also factors in the improved financial risk profile driven by improvement in profitability, capital structure and coverage indicators during the last couple of years. The ratings continue to take into account long track record of OCCL in the business of producing IS, its established market position in the domestic industry by virtue of being the leading domestic manufacturer of IS, strong customer base comprising major tyre manufacturers across the world and long-term relations with them and favourable growth prospects in the domestic tyre industry driven by radialisation of tyres.

The ratings, however, are constrained by risk associated with cyclical nature of the demand being derived primarily from automotive segment, partly mitigated by the replacement demand of tyres and primarily debt-funded capital expenditure (capex) of OCCL for setting up a greenfield IS plant at Mundra Special Economic Zone (SEZ).

ICRA also notes that the company faces threat from competition from Chinese players. Besides, the company is exposed to project implementation risks arising from large capex plan in relation to the existing capacity of OCCL; however, the risk is partly mitigated by the advanced stage of the phase I of the project. Any time or cost overrun for the greenfield project and deterioration in profitability due to inability to pass on rising raw material prices leading to significant deterioration in debt protection metrics would be key rating sensitivities.