Rationale

The rating reaffirmation factors in Birla Carbon India Private Limited’s (BCIPL) position as one of the leading players in the domestic carbon black industry. It has a strong parentage as it is a part of the Aditya Birla Group, a leading player in the global carbon black business, and benefits from the associated financial flexibility and the Group’s technical know-how and scale of operations. The ratings factor in BCIPL’s healthy credit profile, marked by moderate debt and comfortable cash flow at the standalone level. However, its 100% subsidiary is undertaking a debt-funded capex, which will impact the leverage and coverage metrics of BCIPL at a consolidated level, especially for FY2027 and FY2028. After this, the leverage and coverage metrics are expected to improve with a ramp-up in the subsidiary’s operations. In FY2025, BCIPL’s operating income remained flat due to a stagnation in volumes. The turnover in the current fiscal is expected to be at a similar level. While the volumes have improved in 9M FY2026, this has been offset by a pressure on realisations. Further, BCIPL’s profitability was impacted by a decline in the operating margin to

7.6% in H1 FY2026 from

10.3% in FY2025. This was because of a large influx of Russian carbon black in India following the European Union’s ban on carbon black imports from Russia. The oversupply in the domestic market added to this pressure. While the ban on Russia presented an opportunity to Indian carbon black exporters, subdued realisations in the domestic market constrained the margins. The margins are expected to remain under pressure in the near term till the time the demand-supply scenario changes. ICRA also notes that the company is in the process of undertaking a debt-funded capex of

Rs. 1,500 crore under its 100% subsidiary – Birla Carbon AP Private Limited (BCAPPL). A part of the funding will be met by equity contribution from the cash flows of existing operations and the available liquidity of BCIPL, while the balance will be debt funded. Thus, during the capex implementation period, with the addition of debt, the credit profile of BCIPL (consolidated) is likely to witness some moderation. ICRA notes that BCIPL has extended a sizeable proportion of funds to its Group companies in the form of inter-corporate deposits (ICDs), which had resulted in reliance on external debt in the past, although the company receives interest on these deposits on a quarterly basis. The ICDs stood at Rs. 1,682 crore as on September 30, 2025. ICRA also takes note of the investment of

Rs. 124 crore made by the company in Royal Carbon Black Pvt. Ltd., acquiring a 26% stake to enter the recycled carbon black segment. However, BCIPL’s liquidity position and debt coverage indicators have remained comfortable amid healthy cash generation from the business. While the cash level was low during year-end owing to the payments to suppliers, it stood at around Rs. 155 crore as on September 30, 2025. The adequate cash level, along with unutilised bank limits, indicates a healthy liquidity position. The ratings are tempered by high customer concentration risk with the top five customers accounting for

68% of its FY2025 revenues along with the high end-user industry concentration. However, the strong credit profile of its customers reduces the counterparty credit risk. The ratings also consider the inherent cyclicality of the business and the exposure of the company’s margin to the adverse movement in raw material prices.