Covid: Shortage of oxygen supply for industrial use to impact revenues of SMEs, says Crisil

Onsite consumption of oxygen through captive plants for process-driven industries (including the nine sectors exempted by the government) accounts for 75-80 per cent of oxygen manufactured in India. (Photo source: IE)

Ease of Doing Business for MSMEs: Deploying medical oxygen supplies, which has been barred for industrial use, in hospitals to treat Covid-19 patients following its rising demand amid the second wave of the pandemic would impact small and medium enterprises (SMEs). The ‘hiccup seems temporary for now’ will be faced by SMEs in metal fabrication, automotive components, shipbreaking, paper, and engineering, according to rating agency Crisil. The demand for medical oxygen is likely to have jumped five-fold in the second week of April in comparison to pre-pandemic levels, it added. “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. These (SMEs) typically do not have captive oxygen plants and source their requirement through merchant suppliers for operations such as welding, cutting, cleaning, and chemical processes,” said Gautam Shahi, Director, CRISIL Ratings.

Moreover, setting up an air-separation plant or importing oxygen is not a viable option as it requires significant lead time and involves a relatively prohibitive cost that leaves SMEs more vulnerable compared with larger peers, the agency said. 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 per cent of oxygen manufactured in India. The balance 20-25 per cent is supplied through merchant sales (called liquid oxygen) through cryogenic tanks and cylinders, Crisil said. The healthcare sector consumes around 10 per cent of merchant sales, and others the rest.

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“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 inventory. Therefore, we expect only a limited decline in revenue for them. Their credit profiles are expected to be stable,” said Sushant Sarode, Associate Director, CRISIL Ratings. However, the ‘downside risk’ in affected sectors, according to Crisil, will be exacerbated if the current Covid wave extends for a longer than expected period curtailing oxygen supply to industries.

The impact will be higher for businesses in Maharashtra, New Delhi, Rajasthan, Madhya Pradesh, and Gujarat, where medical oxygen demand has increased multiple times due to high caseloads, Crisil added. Home Secretary Ajay Bhalla on Sunday had asked Chief Secretaries of states and union territories to prohibit oxygen supply meant for industrial use from April 22 except for nine specified industries. The nine industries included ampoules & vials, pharmaceutical, petroleum refineries, steel plants, nuclear energy facilities, oxygen cylinder manufacturers, wastewater treatment plants, food & water purification, and process industries which require the uninterrupted operation of furnaces, processes, etc.