CRISIL revises rating outlook on MCC PTA India to \'Stable\'

CRISIL has revised its rating outlook on the long-term bank facilities of MCC PTA India Corporation Pvt Ltd (MCC PTA) to "˜stable' from "˜negative', while reaffirming the rating at \'A-\'. The rating on the short-term facilities has been reaffi

CRISIL has revised its rating outlook on the long-term bank facilities of MCC PTA India Corporation Pvt Ltd (MCC PTA) to ?stable? from ?negative?, while reaffirming the rating at ?A-?. The rating on the short-term facilities has been reaffirmed at ?P2+?.

*Includes proposed limit of Rs.4500 million

The outlook revision reflects CRISIL?s belief that MCC PTA will maintain its financial risk profile at the current level over the medium term, supported by expected stabilisation of operations at its new unit, steady profitability outlook for the purified terephthalic acid (PTA) industry, and continued support from its parent, Mitsubishi Chemical Corporation, Japan (MCC).

MCC PTA?s new unit, with PTA manufacturing capacity of 0.8 million tonnes per annum (tpa), was set up at an investment of USD422 million. There were delays in stabilisation of operations at the new unit, resulting in low capacity utilisation in 2010 (refers to calendar year, January 1 to December 31). The company is making an additional investment of USD20 million in 2010 and 2011 to stabilise operations at the unit. However, despite the delays, MCC PTA has maintained its financial risk profile in 2010, supported by its healthy profitability in 2009 and extended credit support from MCC for raw material supplies.

The ratings continue to reflect the operational and financial support that MCC PTA receives from MCC, and MCC PTA?s improving market position, supported by increasing capacities. These rating strengths are partially offset by the company?s moderate financial risk profile marked by moderate gearing, and susceptibility of its operating margin to volatility in raw material prices and in foreign exchange rates.

Outlook: Stable

CRISIL believes that MCC PTA will continue to benefit over the medium term from the expected stabilisation of operations at its new unit, its market position in the PTA industry, and continued support from its parent. The outlook may be revised to ?Positive? if MCC PTA optimally utilises its enhanced capacity and sustained increase in operating margin, leading to improvement in debt protection metrics. Conversely, the outlook may be revised to ?Negative? if the company?s financial risk profile deteriorates, most likely because of lower-than-expected profitability or larger-than-expected debt-funded capital expenditure over the medium term.