Rating Rationale

Key Rating Drivers & Detailed Description

Strengths:

Strong operational, financial, and managerial support from ONGC

OPaL is strategically important to ONGC as it comprises downstream integration for the parent for utilisation of naphtha, ethane (C2), propane (C3) and butane (C4). OPaL has signed raw material supply agreements with its parent for the purchase of feedstock, such as C2, C3, C4 and naphtha, for 15 years. A dedicated pipeline for the supply of naphtha from the ONGC Hazira plant to the OPaL plant has been constructed to ensure uninterrupted raw material supply.

ONGC holds 95.69% stake in OPaL and the latter benefits from the strong financial flexibility of the ONGC group, which helps raise short and long-term debt at short notice and competitive rates.

ONGC has the highest representation on the board of OPaL with three members including a common chairman. OPaL and ONGC have the same brand. OPaL will remain strategically important to the parent and ONGC will continue to provide strong operational, managerial and financial support to OPaL.

One of the largest integrated petrochemical plants in India

The petrochemical complex of OPaL is strategically located in the SEZ in Dahej, Gujarat, and is well-placed to meet the growing demand for petrochemical products in the domestic and overseas markets. As sales are mainly in the domestic market, the company is exiting the SEZ. The project has assured supply of feedstock (C2, C3 and C4) and produces premium products. Furthermore, the plant has a dual feed cracker unit which helps generate better production rate and margin.

Weaknesses:

Vulnerability to fluctuations in the prices of feedstock and finished products

Operating profitability will remain vulnerable to volatility in spread between the prices of feedstock (naphtha and C2+ components) and finished products. Feedstock prices rose to Rs 53 per tonne during the first half of fiscal 2025 from Rs 48 per tonne in the corresponding period of the previous fiscal, while polymer prices remained broadly stagnant. Profitability will improve over the medium term as feedstock prices ease and polymer prices pick up following an improvement in demand.

Modest financial risk profile

Operating performance declined in fiscal 2024 on account of high feedstock prices, and debt increased to Rs 30,330 crore as on March 31, 2024, from Rs 26,926 crore a year earlier, and is likely to be moderate in fiscal 2025. Debt protection metrics have weakened, with interest coverage remaining negative. In fiscal 2026, the debt protection metrics will remain modest, with continued dependence on replacement of debt to meet debt obligation.

Furthermore, because of the capital-intensive nature of the project, gearing is expected to remain high in the near term. Short-term debt has been replaced by long-term debt at competitive rates in the past, backed by letter of comfort extended by ONGC.