| Chambal Fertilisers and Chemicals Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+/Stable/CRISIL A1+'; Rated amount enhanced for Bank Debt | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and commercial paper of Chambal Fertilisers And Chemicals Limited (Chambal)
The ratings continue to reflect the established market position of Chambal, and the superior operating efficiency of its fertiliser plants. Operating performance remains comfortable, with plants operating at over 100% utilisation and within the prescribed energy norms. Profitability of the urea division has remained immune to the rise seen in feedstock (natural gas) prices, with the increase compensated through subsidy receipts from the government. Exposure towards the non-urea business remains restricted through trading activities, wherein products prices are also softening.
Financial risk profile of the company remains comfortable, driven by improved capital structure and debt protection metrics. While there was a mid-term subsidy buildup during fiscal 2023, due to unprecedented rise in feedstock as well as product prices, the situation is expected to ease by fiscal year-end.
Chambal has no large cash outflows towards capital expenditure (capex) or investments over the near term. The ratio of net debt to operating profit before depreciation, interest and taxes (OPBDIT) is expected to remain below 1.5 times over the medium term.
The 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 in terms of production capacity. Its share in the total domestic urea production is 12.0%, driven by ramp-up of its Gadepan-III plant. The company has maintained its share in the non-urea fertilisers segment. It has a significant market share in north India, supported by its 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, which ensures sufficient gas availability.
Superior operating efficiency High operating efficiency is driven by plants functioning at more than 100% of capacity, energy consumption below the prescribed norms and additional fixed cost of Rs 350 per tonne provided by the government for urea players. Excluding the months where the plants were shut for maintenance, the Gadepan-I and -II plants operated below the energy norm of 5.500 gigacalorie per tonne during fiscal 2022 and first nine months of fiscal 2023. The Gadepan-III unit consumed less than 5.00 gigacalorie per tonne, improving the operating efficiency of the urea manufacturing business.
Chambal sold 3.31 million tonne of urea and 0.97 million tonne of DAP/muriate of potash/nitrogen phosphorus potassium during fiscal 2022 (3.35 million tonne and 1.64 million tonne, respectively, in the corresponding period of the previous fiscal). While uneven distribution of rainfall caused a marginal decline in urea sales, the global shortage of complex fertilisers impacted sales volume in the domestic market. During the first nine month of fiscal 2023, 2.57 million tonne of urea and 1.02 million tonne of DAP/muriate of potash/nitrogen phosphorus potassium were sold (2.52 million tonne and 0.69 million tonne, respectively, in the corresponding period of the previous fiscal).
Operating performance of the urea production division has remained immune to the rise seen in feedstock (natural gas) prices, as it is passed through entirely, to be compensated through subsidy receipts from the government. For profitability against production above reassessed capacity, wherein incentive is capped at import parity price of urea plus incidental charges, to also not be impacted on considering that the imported urea prices are also high. Production of the Gadepan-III unit has been restricted at 100% as there has been no defined policy for production above 100% for plants commissioned under the new urea investment policy. Amidst the rise witnessed in imported fertilizer prices, government has permitted Chambal to increase its output from this unit to beyond the installed capacity in last two fiscal years which will support its operating efficiency.
Comfortable financial risk profile Additional subsidies announced by the government in fiscal 2021 was mainly used to repay working capital borrowings, thereby substantially improving the capital structure and debt protection metrics of the company.
However, since then, the unprecedented rise in raw material prices (especially pooled gas prices) and imported fertilizer rates caused a gradual buildup in subsidy receivables position in fiscal 2022. Nevertheless, benefited by the company’s strong operating performance in terms of consuming energy below the prescribed norms and favored by the policy benefits for the Gadepan-III plant, the adjusted debt to adjusted networth remained comfortable at 0.68 times as on March 31, 2022 (0.75 times as on March 31, 2021). Net debt to OPBDIT ratio was also at 1.62 times in fiscal 2022 (1.19 times in fiscal 2021).
For fiscal 2023, while there has been mid-term subsidy buildup amidst unprecedented rise in feedstock as well as product prices, the situation is expected to ease by fiscal year-end. Chambal has no large cash outflow towards capex or investments over the near term. Overall, net debt to OPBDIT ratio is expected to remain below 2.0 times over the medium term.
Weakness: Exposure to regulatory risks Given the government’s thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Hence, players are susceptible to regulatory changes. The government has been focusing on reducing subsidy without increasing prices by urging companies to adopt efficient methods for urea production. In line with these measures, the government has tightened energy consumption norms, thereby impacting profits of urea players unless they improve energy efficiency. The impact of this norm is mitigated by the agreed additional fixed cost of Rs 350 per tonne allowed for all urea manufacturers.
Fertiliser companies are also susceptible to delays in subsidy payments from the government, leading to high reliance on working capital loans. Any deferment in the disbursement of subsidy on account of under-budgeting and any change in the regulatory scenario remain key rating sensitivity factors. |
Liquidity: Strong Fund-based bank limit of Rs 4,000 crore was utilised at around 20% on average over the 12 months through February 2023. The bank limit utilisation has reduced significantly after major clearance of the subsidy buildup by the government. Healthy annual cash accruals will adequately cover term debt obligations of the company over the medium term.
Environmental, social and governance (ESG) profile CRISIL Ratings believes that the company’s ESG profile supports its already strong credit risk profile.
The chemical sector has a significant impact on the environment, due to the high greenhouse gas (GHG) emissions and hazardous waste generated by its core operations. In line with this, Chambal has been continuously focusing on mitigating its environmental and social risks to ensure minimal impact.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. Chambal’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to capital markets. |
Outlook: Stable Business and financial risk profiles will sustain over the medium term, supported by strong market position, healthy operating efficiency, and expectation of adequate subsidy budget allocation by the Government. |
Rating Sensitivity factors Upward factors
* Net cash = cash and equivalents - total debt
Downward factors
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About the Company Incorporated in 1985 and based in Kota, Rajasthan, Chambal has the largest installed urea capacity of 3.00 million tonne in the private sector in India. Its significant market share in north India is supported by its strong Uttam Vir brand and robust distribution network. The company also trades in complex fertilisers and pesticides.
During the first nine months of fiscal 2023, the company achieved profit after tax (PAT) of Rs 940 crore on a total income of Rs 24174 crore, against Rs 1322 crore and Rs 12762 crore, respectively, during the corresponding period of the previous fiscal. |
Key Financial Indicators (consolidated)*
*As per analytical adjustment by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^^ Equivalent to USD 510 million @ Rs 65.74 per US dollar $$ Equivalent to USD 185 million @ Rs 65.74 per US dollar @ Letter of credit and bank guarantee limits are interchangeable |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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