Rating Rationale
September 10, 2024 | Mumbai
Indian Phosphate Limited
Ratings upgraded to 'CRISIL BBB+/Stable/CRISIL A2'
 
Rating Action
Total Bank Loan Facilities RatedRs.132 Crore
Long Term RatingCRISIL BBB+/Stable (Upgraded from 'CRISIL BBB/Stable')
Short Term RatingCRISIL A2 (Upgraded from 'CRISIL A3+')
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 upgraded its ratings on the bank facilities of Indian Phosphate Ltd (IPL) to ‘CRISIL BBB+/Stable/CRISIL A2’ from ‘CRISIL BBB/Stable/CRISIL A3+’.

 

The upgrade factors in the improved financial risk profile, as indicated by robust capital structure and strong debt protection metrics. Networth is expected to be around Rs. 160 crores in fiscal 2025 owing to proceeds of initial public offering (IPO) and steady accretion to reserves. IPO was launched on August 26, 2024, for fresh issue of Rs. 68 crores with a price band of Rs. 94-99 and was fully subscribed. Proceeds of Rs. 33 crores will be utilized for capacity expansion in Cuddalore, Tamil Nadu for expanding its geographical footprint in South, Rs. 25 crores for working capital purposes and the remaining for general corporate purposes. Debt protection metrics were healthy with gearing of 0.5 times in fiscal 2024 and expected to be below 0.08 times in fiscal 2025 on account of controlled reliance on external debt and improvement in networth due to fresh issue.

 

The rating also factors in comfortable liquidity profile marked by effective working capital management as reflected in GCA days of 62 days as on March 31, 2024. Net cash accruals are expected to be around Rs. 16-18 crores in fiscal 2025 against minimal repayment obligation of Rs. 1-2 crores. Current ratio improved to 1.63 times in fiscal 2024 from 1.49 times in previous fiscal and is expected to further improve to more than 2 times in near term.

 

The ratings reflect the extensive experience of promoters and their funding support, and a healthy financial risk profile. These rating strengths are partially offset by exposure to fluctuation in raw material prices.

Analytical Approach:

Previously CRISIL Ratings had combined the business and financial risk profiles of India Phosphate Ltd (IPL) and its group company, Udaipur Poly Sacks Limited (UPSL). However, post the initial public offering of IPL, its management has indicated that it does not intend to maintain any business/financial fungibility with UPSL.

Key Rating Drivers & Detailed Description

Strengths:

  • Experienced promoters and their funding support: The promoters have more than 25 years of experience in the industry. Their experience has led to established healthy relationship with its major customer, Hindustan Unilever Ltd. Also, they have established strong network dealers for sales of fertilizers across Rajasthan, Uttar Pradesh, Haryana, and Himachal Pradesh.

 

The company manufacture and sells LABSA and SSP, which contributed around 90% and 10% respectively in revenues estimated for fiscal 2024. his helps partially withstand any setback in a particular segment. Revenue declined to Rs. 705 crores in fiscal 2024 from Rs. 770 crores in fiscal 2023 due to a decline in fertilizer subsidy by Rs. 3000/MT. Revenge is expected to grow by 5-7% for fiscal 2025 owing to ramp up in operations of expanded capacity in LABSA segment. Operating margin remained steady at around 3.5%.

 

  • Healthy financial risk profile: Net-worth of Rs 80 crore as on March 31, 2024 and limited reliance on external debt has resulted in comfortable capital structure with gearing of 0.05 times (fiscal 2023: 0.2 times) and TOLTNW ratio of 0.9 times as on March 31, 2024. Gearing has increased in fiscal 2024 due to increase in working capital utilization. Further, the debt protection metrics are comfortable in fiscal 2024 with interest coverage ratio and net cash accrual to adjusted debt ratios of 5.10 and 0.4 times respectively. Despite planned capex, financial risk profile would remain healthy owing to steady cash accrual and fresh issue which will fund the capacity expansion plans.

 

  • Moderate working capital cycle marked by receivables from fertilizer segment: Gross current assets were at 62 days as on March 31, 2024, driven by receivables and inventory of 30 and 27 days, respectively. GCA days are expected to be around 80-90 days in medium term. The debtor cycle is high in the fertilizer segment, where 40-45% of the price of fertilizers is received as subsidy from the government after raising the bill. Any significant delay in receipt of subsidy can impact group’s working capital management and liquidity.

 

Weakness:

  • Exposure to fluctuating prices for LABSA & Raw Material Cost of SSP: The operating margins was 3.5% in fiscal 2024. Any increase in raw materials prices for LABSA and SSP can impact profitability in case of time lag in pass through. Higher contribution of LABSA which is a low margin business vis-à-vis fertilizer will lead to operating margin moderating over medium term. Further the amount of government subsidy and timeliness of its receipt remains critical.

Liquidity: Adequate

Net cash accrual is expected to be around Rs 16-18 crore per annum against yearly debt obligation of Rs 1-2 crore, over the medium term. The surplus and fresh issue proceeds will help fund working capital requirement, thereby lowering dependence on external debt. Bank limits of Rs.45 crores were moderately utilized at 86% over 12 months ending June 2024. The current ratio improved  to 1.63 times in fiscal 2024 from 1.49 times in fiscal 2023. Nonetheless, any stretch in subsidy payments or undertaking significantly large, debt-funded capex can weaken liquidity.

Outlook: Stable

CRISIL Ratings believs that IPL will continue to benefit from the extensive experience of its promoters.

Rating sensitivity factors

Upward Factors

  • Steady improvement in revenue along with operating margin remaining at over 6% on a consistent basis.
  • Sustenance of comfortable capital structure, debt protection metrics and surplus liquidity.

 

Downward Factors

  • Lower-than-expected revenue growth and a steep dip in operating profitability resulting in cash accrual of less than Rs 11 crore per fiscal.
  • Weakening of financial risk profile because of larger-than-anticipated, debt-funded capex or further stretch in working capital cycle.

About the Company

IPL, established in 1998, is involved in manufacturingand sales of fertilizers, SSP (Singular Super Phosphate) both granular and powdered. It is also engaged in manufacturing LABSA since 2004 (one of the raw materials used for manufacturing of detergent)

Key Financial Indicators

As on / for the period ended March 31

 

2023

2022

Operating income

Rs crore

770.6

558.2

Reported profit after tax

Rs crore

16.5

25.4

PAT margins

%

2.1

2.9

Adjusted Debt/Adjusted Net worth

Times

0.2

0.36

Interest coverage

Times

6.6

8.8

Any other information: Not Applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name Of Instrument Date Of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs. Crore) Complexity Levels Rating Outstanding with Outlook
NA Bank Guarantee NA NA NA 2.00 NA CRISIL A2
NA Cash Credit NA NA NA 48.00 NA CRISIL BBB+/Stable
NA Foreign Exchange Forward NA NA NA 0.20 NA CRISIL A2
NA Letter of Credit NA NA NA 45.00 NA CRISIL A2
NA Proposed Cash Credit / Bills Discounting Limit NA NA NA 1.92 NA CRISIL BBB+/Stable
NA Term Loan NA NA 31-Dec-25 29.00 NA CRISIL BBB+/Stable
NA Term Loan NA NA 31-Dec-25 1.96 NA CRISIL BBB+/Stable
NA Term Loan NA NA 31-Dec-25 3.92 NA CRISIL BBB+/Stable
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities ST/LT 85.0 CRISIL BBB+/Stable / CRISIL A2   -- 13-12-23 CRISIL A3+ / CRISIL BBB/Stable 26-09-22 CRISIL BBB/Stable 11-06-21 CRISIL BBB-/Stable CRISIL BBB-/Stable
      --   -- 01-12-23 CRISIL BBB/Stable 07-09-22 CRISIL BBB/Stable 07-06-21 CRISIL BBB-/Stable --
      --   -- 05-10-23 CRISIL BBB/Stable   --   -- --
      --   -- 26-04-23 CRISIL BBB/Stable   --   -- --
Non-Fund Based Facilities ST 47.0 CRISIL A2   -- 13-12-23 CRISIL A3+ 26-09-22 CRISIL A3+ 11-06-21 CRISIL A3 CRISIL A3
      --   -- 01-12-23 CRISIL A3+ 07-09-22 CRISIL A3+ 07-06-21 CRISIL A3 --
      --   -- 05-10-23 CRISIL A3+   --   -- --
      --   -- 26-04-23 CRISIL A3+   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1 Punjab National Bank CRISIL A2
Bank Guarantee 1 Indian Overseas Bank CRISIL A2
Cash Credit 33 Indian Overseas Bank CRISIL BBB+/Stable
Cash Credit 15 Punjab National Bank CRISIL BBB+/Stable
Foreign Exchange Forward 0.2 Punjab National Bank CRISIL A2
Letter of Credit 25 Punjab National Bank CRISIL A2
Letter of Credit 20 Indian Overseas Bank CRISIL A2
Proposed Cash Credit / Bills Discounting Limit 1.92 Not Applicable CRISIL BBB+/Stable
Term Loan 1.96 Indian Overseas Bank CRISIL BBB+/Stable
Term Loan 3.92 Indian Overseas Bank CRISIL BBB+/Stable
Term Loan 29 Punjab National Bank CRISIL BBB+/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt
Understanding CRISILs Ratings and Rating Scales

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