| Chambal Fertilisers and Chemicals Limited | ||||||
| Long-term rating upgraded to 'CRISIL AA+/Stable'; short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long-term bank facilities of Chambal Fertilisers and Chemicals Ltd (Chambal) to ‘CRISIL AA+/Stable’ from ‘CRISIL AA/Positive’; the rating on the short-term bank facilities and commercial paper has been reaffirmed at ‘CRISIL A1+’.
The rating upgrade reflects CRISIL Rating’s expectation of sustaining the improved financial risk profile driven by strong cash accrual, absence of any major debt-funded capital expenditure (capex) plans in the near term, and steady working capital position with no material built-up of subsidy arrears.
Financial risk profile has improved significantly in fiscal 2021 driven by sharp reduction in working capital borrowing and subsequent improvement in capital structure on account of disbursement of additional subsidy by the government announced under the Aatma Nirbhar Bharat Package 3.0 in November 2020, and subsequently added in the revised estimate of fiscal 2021 fertiliser subsidy budget on February 1, 2021. Chambal has received around Rs 5,900 crore of additional subsidy since January 2021, which has substantially reduced its subsidy arrears (receivables estimated at below 50 days as of March 2021 against 166 days as of March 2020). Allocation of Rs 79,530 crore in the fertiliser subsidy budget for fiscal 2022 will prevent any material build-up of subsidy arrears in fiscal 2022. However, any significant increase in subsidy arrears over the medium term will remain a key rating sensitivity factor.
Cash accrual is expected to remain strong, driven by established market position and superior operating efficiency of the plants. Chambal reported fertiliser sales of 4.3 million tonne during the first nine months of fiscal 2021 against 3.6 million tonne during the corresponding period previous fiscal due to high demand for fertilisers following robust spatial and temporal distribution of an above-normal monsoon. Operating performance remained healthy with all the plants continuing to operate at high utilisation levels (more than 100%) well below the prescribed operating energy norms, and high fertiliser trading volumes.
The company has no large-scale cash outflow plans towards capex or investments over the near term. Overall, net debt to operating profit before depreciation, interest and taxes (OPBDIT) ratios is expected to remain below 1.5 times over the medium term.
The ratings reflect the established market position of Chambal, superior operating efficiency of fertiliser plants and improved capital structure and debt protection metrics. These strengths are partially offset by exposure to regulatory risks. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of Chambal and its subsidiaries because they have strong financial linkages.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: * Established market position in urea and diammonium phosphate (DAP), especially in North India Chambal is the largest private player in the urea industry in India by production capacity. Its share in total domestic urea production increased to 13.4% in fiscal 2020 from 10.4% in fiscal 2019, driven by ramp-up of its Gadepan-III plant (around 100% plant utilisation). The company continues to maintain its share in the non-urea fertilisers segment. It sold 1.597 million tonne of DAP/muriate of potash/nitrogen phosphorus potassium during the first nine months of fiscal 2021 (1.074 million tonne during the corresponding period previous fiscal). Share in the North India market is significant, supported by strong brand (Uttam Vir) and a robust distribution network. Favourable location of plants (near end-user markets and feedstock source), large capacity and low energy consumption are added advantages. The urea plants are near the Hazira-Bijapur-Jagdishpur gas pipeline, thereby ensuring gas availability.
* Superior operating efficiency High operating efficiency is driven by plants functioning at more than 100% utilisation and lower-than-prescribed energy norms, as well as additional fixed cost provided by the government for urea players. The Gadepan-I and -II plants operated below the energy norm of 5.500 gigacalorie per tonne during the first-half of fiscal 2021. The newly commissioned unit, Gadepan-III, also had better operating efficiency than in the last fiscal, thereby improving operating margin.
Operating performance and efficiency in the first nine months of fiscal 2021 continued to be supported by healthy fertiliser sales volume of 4.3 million tonne (3.6 million tonne during the corresponding period previous fiscal). Utilisation was healthy at 118% (111% in the previous fiscal).
Profitability against production above reassessed capacity, wherein incentive is capped at import parity price of urea plus incidental charges, will be healthy in fiscal 2021 because of lower pooled gas prices. Gadepan-III production is restricted at 100% as there is no defined policy for production above 100% for plants commissioned under the new urea investment policy. Any favourable policy by the Government of India for production above 100% for Gadepan-III should support operating efficiency.
The government has also approved the proposal for additional fixed cost of Rs 350 per tonne of urea, which supports the profitability of Chambal.
* Improved capital structure and debt protection metrics The additional subsidy received from the government was utilised to repay the entire working capital borrowing (including commercial papers; around 50% of the total debt as on March 31, 2020). Adjusted debt to adjusted networth is estimated below 1 time as on March 31, 2021 (2.9 times as on March 31, 2020). Debt protection metrics are also expected to improve significantly due to lower interest outgo from fiscal 2022 onwards. Adjusted interest coverage and net debt to OPBDIT ratios are expected to remain above 10 times (4.3 times in fiscal 2020) and around 1.5-1.6 times (4.9 times as on March 2020), respectively, in fiscal 2022. However, any large, debt-funded capex or acquisition that impacts the capital structure and the debt protection metrics will remain a key monitorable.
Weaknesses * Exposure to regulatory risks Given the government thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Hence, players are exposed to any regulatory change made by the government. Of late, the government has focused on reducing subsidy without increasing prices by urging companies to adopt efficient methods of urea production. In line with these measures, the government has tightened energy consumption norms in the past, thereby impacting profits of urea players unless they improve energy efficiencies. The impact of this norm is mitigated by the agreed additional fixed cost of Rs 350 per tonne by the government to all urea manufacturers.
Fertiliser companies are also susceptible to delays in subsidy payments from the government, leading to higher reliance on working capital loans. Any deferment in the disbursement of subsidy on account of under-budgeting and any change in the regulatory scenario will remain key rating sensitivity factors. |
Liquidity: Strong Cash and equivalents stood at around Rs 900 crore and unutilised bank limit was Rs 4,000 crore, as on March-2021. Bank limit utilisation (including commercial paper) was 64% on average (fund-based bank limit of Rs 4,000 crore as of March 2021) over the 12 months through March 2021. Utilisation reduced significantly after disbursement of additional subsidy by government. Healthy annual cash accrual will adequately cover term debt obligation and any incremental working capital requirement over the medium term. Absence of any major capex adds to the financial flexibility. Also, reimbursements to Chambal in Gadepan-III and project-related interest and debt obligations are denominated in dollar, which provides a natural hedge. |
Outlook: Stable Business and financial risk profiles will sustain over the medium term, supported by strong market position, healthy operating efficiency and adequate subsidy budget for fiscal 2022. |
Rating Sensitivity Factors Upward Factors
*Net cash = cash and equivalents - total debt
Downward Factors
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About the Company Incorporated in 1985, Kota (Rajasthan)-based Chambal has the largest installed urea capacity of 3.00 million tonne (1.27 million tonne at the Gadepan-III unit commissioned in January 2019) in the private sector. The company also trades in complex fertilisers and pesticides. In fiscal 2020, Chambal sold and transferred the assets and liabilities of its software subsidiaries. Also, after its subsidiary, India Steamship Pte Ltd, got liquidated and was struck off the Accounting and Corporate Regulatory Authority (ACRA) register, Chambal functions purely as a fertiliser and agricultural inputs entity.
For the first nine months of fiscal 2021, profit after tax (PAT) was Rs 1,206 crore on total income of Rs 11,147 crore, against Rs 1,039 crore and Rs 10,315 crore, respectively, during the corresponding period previous fiscal. |
Key Financial Indicators (Consolidated)*
*As per CRISIL Ratings’ analytical adjustment |
Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
@Letter of credit and bank guarantee limits are interchangeable ^Equivalent to USD 510 million @ 65.74 USD/INR rate $$Equivalent to USD 185 million @ 65.74 USD/INR rate |
Annexure – List of entities consolidated
*India Steamship Ltd stands dissolved from February 9, 2021, after National Company Law Tribunal approved the dissolution through voluntary liquidation **Liquidated on February 28, 2019 ***Liquidated and name struck off from the register of ACRA on April 6, 2020 |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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