Rationale

 The revision in the outlook on the long‑term rating of Acme Chem Limited factors in ICRA’s expectation that the company’s realisations will continue to be under pressure, given the dumping of low‑priced imports from China and other global suppliers, impacting its profitability. The ratings continue to factor in the established presence of the Acme Chem Limited Group in the rubber chemicals industry. The ratings draw comfort from the strategic location of Unit 1 near Unit 2 in the Panoli chemical hub of Gujarat. This proximity, coupled with the Group’s established relationships with reputed automobile tyre manufacturers, has ensured repeat business over the years. The consolidated capital structure remained prudent with the gearing at 0.4 times and TOL/TNW at 0.6 times as on March 31, 2025, due to a healthy net worth that was supported by stable accretion to reserves. The capital structure is likely to remain comfortable in the medium term. ICRA notes, in FY2024, Finorchem had completed the capex to launch products. The capex was partly funded through debt. Following the capex completion, the company is yet to achieve a ramp-up in sales. Also, Finorchem has incurred further capex to secure a critical raw material for one of its existing products, partly funded through debt. Consequently, the partly debt-funded capex, along with the high working capital borrowing, has moderated the coverage metrics in FY2025. The debt levels are expected to decline by March 2026, driven by a reduction in working capital borrowings and scheduled amortisation of long‑term debt. Consequently, the coverage metrics are likely to improve from the current levels over the near to medium term. Further, the market acceptance of the new products and their subsequent scaling up are likely to support the company’s revenue growth along with the increase in its operating margins, thereby improving the coverage metrics in the medium term. The completion of the backward-integration capex is also likely to support the operating margins. However, the ratings are constrained by the fact that Finorchem’s Unit 2 is yet to achieve optimal capacity utilisation, although it is witnessing a gradual ramp-up in volumes. Further, the ramp‑up of capacities from the newly rolled-out products remains a key monitorable. The company also faced pricing pressure that impacted the realisations in FY2025 and 9M FY2026 due to product dumping from international players. Further, rubber chemical manufacturing remains exposed to high sectoral concentration risks due to significant dependence on the tyre manufacturing industry. Besides, the Group is likely to remain exposed to foreign exchange rate fluctuation risk as a major portion of its raw materials is imported. However, this forex risk is mitigated to an extent by a partial natural hedge and the quarterly revision of sale prices offered to its customers. ACL has large investments in land, mainly through subsidiaries and JVs, which have not given commensurate return till date, keeping the overall return on capital employed under check. However, the development agreement entered by ACL and some of its subsidiaries with a reputed real estate developer to monetise a part of the investment in land is likely to support its cash flows, going forward, though the timeliness of the same cannot be ascertained.