| Chambal Fertilisers and Chemicals Limited | ||||||
| Rated amount enhanced | ||||||
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| 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 company’s established market position, superior operating efficiency of fertiliser plants, and high financial flexibility. These strengths are partially offset by a leveraged capital structure and exposure to the risks related to regulated nature of the fertiliser industry.
Fertiliser demand increased significantly in the first-half of fiscal 2021 compared to the corresponding period previous fiscal due to above-normal monsoon with good spatial and temporal distribution. Chambal reported fertiliser sales of 2.85 million tonne during the first-half of fiscal 2021 against 2.22 million tonne during the similar period previous fiscal. Operating performance also remained strong with all the plants continuing to operate at high utilisation levels well below the prescribed operating norms. Working capital intensity remains high due to high subsidy receivables. However, the government has recently announced additional subsidy of Rs 65,000 crore under the Aatma Nirbhar Bharat Package 3.0. This is expected to clear the subsidy arrears of the industry and substantially improve the company’s financial risk profile. However, timelines of disbursement of additional subsidy and fertiliser subsidy budget for fiscal 2022 will remain key monitorables. |
Analytical Approach For arriving at its ratings, CRISIL Ratings has combined the business and financial risk profiles of Chambal and its subsidiaries owing to the strong financial linkages among the entities.
Please refer Annexure – List of entities consolidated, which lists entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
Chambal is the largest private player in the Indian urea sector by production capacity. It increased its share in the total domestic urea production to 13.4% in fiscal 2020 from 10.4% in the previous fiscal, driven by ramp-up of Gadepan-III plant (about 100% plant utilisation). Chambal also continues to maintain its share in the non-urea fertilisers also. The company sold 1.044 million tonne of DAP/Muriate of Potash/nitrogen phosphorus potassium during the first-half of fiscal 2021 (0.595 million tonne during the corresponding period last year). It has a significant share in the North India market, supported by its 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 add to the advantage. The company’s urea plants are near the Hazira-Bijapur-Jagdishpur gas pipeline, thereby ensuring gas availability.
High operating efficiency is driven by plants operating 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 norms of 5.500 Gcal per tonne during the first-half of fiscal 2021. The newly commissioned unit, Gadepan-III also operated better than last fiscal year further providing a boost to the operating margin.
Operating performance and efficiency in the first-half of fiscal 2021 continue to be supported by healthy fertiliser sales volume of manufactured fertiliser at 2.85 million tonne (2.22 million tonne during the corresponding period last fiscal). Utilisation remained healthy at 115% (105% during the previous fiscal).
Profitability against production above reassessed capacity, where incentive is capped at import parity price of urea plus incidental charges, is expected to be healthy in fiscal 2021 owing to lower pooled gas prices. Gadepan-III production is restricted at nearly 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 profits.
The government has also approved the proposal for additional fixed cost of Rs 350 per tonne of urea for the urea players. This additional fixed cost supports profitability of Chambal.
Chambal has a strong ability to contract debt at competitive rates. Since a large part of project-related debt is in foreign currency and the company utilises commercial paper for meeting working capital requirement, borrowing cost is very competitive. Also, large unutilised bank limit and healthy cash accrual aid financial flexibility. Cash accrual from the urea business continues to be stable because of the pass-through nature of feedstock costs and superior operating efficiencies.
Weakness:
Chambal has a leveraged capital structure and moderate debt protection metrics due to large working capital borrowing (around 50% of the total debt as on March 2020) following delay in subsidy disbursement by the government and debt contracted for the Gadepan-III plant. Gearing and debt/operating profit before depreciation, interest, and taxes (OPBDIT) stood at 2.8 times and 5.0 times, respectively, as on March 31, 2020. Disbursement of additional subsidy from the government will the clear the subsidy receivable and further strengthen financial risk profile. However, timelines of disbursement of additional subsidy, fertiliser subsidy budget for fiscal 2022 and any larger-than-expected debt-funded capital expenditure (capex) or acquisition will remain key monitorables.
Given the government’s thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Of late, the government has focused on reducing subsidy without increasing prices by urging companies to adopt more 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. This is partly offset by the agreed additional fixed cost of Rs 350 per tonne by the government to all urea manufacturers.
Fertiliser companies are also exposed to delays in subsidy payments from the government, leading to higher reliance on short-term working capital debt. Disbursement of additional subsidy will lead to significant reduction in working capital borrowings. |
Liquidity : Strong Cash and cash equivalents stood at Rs 79 crore as on September 2020 (Rs 168 crore as of March 2020). Average bank limit utilisation (including commercial paper) is 74% (fund-based bank limit of Rs 4,000 crore as on November 2020) for the 12 months through November 2020. Liquidity is further supported by healthy annual cash accruals which is adequate for meeting the repayment of long term borrowings. No major capex over the medium term adds to the financial flexibility. Also, the reimbursements to Chambal in Gadepan-III and the project-related interest and debt repayments are dollar denominated, which provide a natural hedge. |
Outlook Stable Chambal’s business performance should sustain over the medium term with strong market position and operating efficiency from its fertiliser business. |
Rating Sensitivity factors Upward Factors
Downward Factors
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About the Company Chambal, incorporated in 1985, is a Kota (Rajasthan)-based company that has the largest installed urea capacity of 3.00 million tonne (1.27 million tonne of urea unit at Gadepan-III commissioned in January 2019) in the private sector. The company also trades in complex fertilisers and pesticides. During 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 register, Chambal now functions purely as a fertiliser and agricultural-inputs entity.
During the first-half of fiscal 2021, the company reported a profit after tax (PAT) of Rs 735 crore on a total income of Rs 7,285 crore, against Rs 556 crore and Rs 6,475 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
*under liquidation ** liquidated on February 28, 2019 ***liquidated and name struck off from the register of ACRA on April 6, 202 |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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