CARE Ratings revises Primo Chemicals rating outlook to 'negative'

Primo Chemicals said that CARE Ratings revised its outlook on the long-term bank facilities of the company 'negative' from 'stable' while reaffirming the rating at 'CARE BBB-'.

The agency has also reaffirmed its CARE A3 rating on the short-term bank facilities of the company.

CARE Ratings stated that the reaffirmation of the ratings assigned to the bank facilities of Primo Chemicals (PCL) continue to derive strength from the experienced promoters with a long track record of operations, the favourable location of the plant and the moderate diversification of the clientele across various end-user industries.

The ratings take cognizance of moderation in total operating income and profitability during FY24 (period refers to from April 1 to March 31) on account of the significant decline in Electro Chemical Unit (ECU) realizations during the year. However, the ECU realization have shown improvement during the first quarter of FY25.

This along with operationalization of caustic soda flakes plant from December 2023, the volumes of same shall increase consistently which is expected to yield better profitability margins going forward.

The ratings, however, continue to remain constrained by the inherent volatility in ECU realizations of caustic soda leading to volatile margins over the past five years.

The ratings also continue to remain constrained by the susceptibility of profitability to adverse movements in power cost, the threat of cheaper imports from foreign countries, and the competition with established integrated players in an inherently cyclical caustic soda industry.

Primo Chemicals mainly manufactures caustic soda lye, which is widely used in industries like soap, paper, dyes, chemicals, and plastic. The other products, such as liquid chlorine, hydrochloric acid, sodium hypochlorite, etc, are the by-products of the manufacturing process.

The scrip rose 0.74% to currently trade at Rs 38.35 on the BSE.

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