CRISIL Ratings has downgraded the long-term bank facilities rating for Laxmi Organic Industries Ltd (LOIL) to ‘Crisil AA-/Negative’ from ‘Crisil AA/Negative’. The short-term rating remains reaffirmed at ‘Crisil A1+’. This revision reflects a steeper-than-anticipated decline in revenue and profitability during the first nine months of fiscal 2026, driven by challenging realizations in the specialty chemicals segment.
Credit Rating Revision Announced
Pursuant to regulatory requirements, Laxmi Organic Industries Ltd (LOIL) hereby informs stakeholders that CRISIL Ratings Limited (‘CRISIL’) has revised its outlook on the company’s long-term bank facilities. The rating has been downgraded to ‘Crisil AA-/Negative’ from its previous rating of ‘Crisil AA/Negative’. Concurrently, the rating for the short-term bank facilities and commercial paper has been reaffirmed at ‘Crisil A1+’.
Rationale for Downgrade
The revision factors in a steeper than anticipated decline in revenue and profitability, with expectations that medium-term performance will remain below prior estimates. Revenue from operations decreased by 9% to Rs.2,071 crore in the first nine months of fiscal 2026, compared to Rs.2,276 crore in the corresponding period of fiscal 2025. This decline was primarily due to a sharp 22% drop in specialty chemical revenues (27% of sales).
Profitability and Margin Contraction
Operating margins deteriorated significantly to 4.4% in the first nine months of fiscal 2026 from 9.5% in the previous fiscal’s nine months. This contraction stemmed from a severe decline in profitability across both specialty segment (where margins fell from 24% to 13%) and the essential segment (where margins fell from 3% to 1%). The poor performance was linked to a steep correction in realization for key products and subdued Ethyl Acetate spreads.
Overall revenue for fiscal 2026 is expected to be below prior expectations. While medium-term revenue is forecasted to reach Rs 3,300-3,500 crore, operating margins are only expected to recover modestly to 7-9%.
Financial Health and Capital Expenditure
Return on capital employed (RoCE) is projected to decline to a low single digit this fiscal from 8.5% in fiscal 2025 due to high capital expenditure (capex). The company is estimated to incur over Rs 700 crore capex in fiscal 2026, with approximately Rs 550 crore earmarked for the Dahej plant expansion. Post this, annual capex is expected to moderate to Rs 100-150 crore.
The capital structure remains generally strong. As of September 30, 2025, the healthy tangible networth stood at Rs 1,928 crore against debt of Rs 330 crore, resulting in a gearing of 0.17 time. Despite expected debt increases for capex, adjusted gearing is still anticipated to remain below 0.5 time in the near to medium term.
Key Strengths
- Market Position: LOIL holds a strong market position, being the seventh-largest manufacturer of ethyl acetate globally and commanding approximately 55% of the domestic demand for diketene derivatives.
- Diversified End-Users: The company serves diverse industries including pharmaceuticals and agrochemicals, ensuring no single segment contributes more than 40% of revenue.
- Liquidity: Liquidity is considered Strong, supported by estimated net cash accruals of Rs.100 – 120 crore in this fiscal and unutilized bank lines of over Rs 440 crore.
Outlook Negative Factors
The Negative outlook reflects sustained efficiency moderation, slower-than-expected recovery in margins, and the ongoing exposure to volatility in input prices (acetic acid, ethanol) and foreign exchange rates, which directly impact profitability.
Source: BSE
