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Oxygen shortage will hurt small businesses in some sectors: CRISIL

Oxygen shortage will hurt small businesses in some sectors: CRISIL

Oxygen shortage will hurt small businesses in some sectors: CRISIL
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By CNBCTV18.com Apr 21, 2021 2:58:21 PM IST (Updated)

Setting up an air-separation plant or importing oxygen requires significant lead time and involves relatively prohibitive cost, so is not a viable option, the CRISIL report said.

With much of the oxygen supply being diverted for medical use in the wake of rising COVID-19 cases, some sectors will feel the pinch, said a report by rating agency CRISIL.

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“The disruption in the supply of oxygen for industrial use would temporarily impact the revenues of small and mid-sized companies into metal fabrication, automotive components, shipbreaking, paper, and engineering,” said Gautam Shahi, Director, CRISIL Ratings.
“These typically do not have captive oxygen plants and source their requirement through merchant suppliers for operations such as welding, cutting, cleaning and chemical processes,” Shahi said.
Setting up an air-separation plant or importing oxygen requires significant lead time and involves relatively prohibitive cost, so is not a viable option, the CRISIL report said.
That leaves the smaller players more vulnerable compared with larger peers, the report said.
Sushant Sarode, Associate Director, CRISIL Ratings said, “At this juncture, we believe that the disruption in oxygen supplies for industrial use will be for 6 to 8 weeks. Besides, affected sectors can partly manage their oxygen requirements with an inventory. Therefore, we expect only a limited decline in revenue for them. Their credit profiles are expected to be stable.”
Oxygen is consumed by industry in two ways – onsite, and merchant sales. Onsite is through captive plants for process-driven industries (including the nine sectors exempted by the government), which account for 75-80 percent of the oxygen manufactured in India, the report said.
The balance 20-25% is supplied through merchant sales (called liquid oxygen) through cryogenic tanks and cylinders. The healthcare sector consumes ~10% of merchant sales, and others the rest.
The CRISIL report has warned that a prolonged and intense second wave that curtails oxygen supply to industries for a longer period than expected will exacerbate downside risk in affected sectors.
Agency sees the impact to be greater for companies in Maharashtra, New Delhi, Rajasthan, Madhya Pradesh and Gujarat, where medical oxygen demand has increased multiple times due to high COVID-19 case loads.
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