Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Krishana Phoschem Ltd (KPL).

 

The reaffirmation reflects the healthy business risk profile, as seen in the company’s established market position in the SSP (single super phosohate) fertiliser industry, strong linkages with the parent, Ostwal Phoschem India Ltd (OPIL; ‘CRISIL A/Stable/CRISIL A1’), and its healthy operating margin aided by backward integration. The financial risk profile remains comfortable, supported by high cash accrual leading to comfortable debt protection metrics and prudent funding of the capital expenditure (capex). These strengths are partially offset by significant capacity expansion leading to moderation of debt protection metrics and exposure to regulatory risks in the fertiliser industry.

 

Revenue grew significantly to Rs 924 crore for fiscal 2024 from Rs 323 crore in fiscal 2023, driven by ramp up in capacity utilisation of the phosphatic fertilisers (DAP/NPK) plants that were set up recently. This revenue growth is despite subdued volumes in SSP sales, in line with the industry, and lower realisations in phosphatic fertiliser due to fall in nutrient-based subsidy (NBS) rates in the second half of fiscal 2024. A capacity of 3.3 lakh metric tonne of DAP/NPK was commissioned in March 2023. Healthy revenue growth is expected in fiscal 2025 with high utilisation in DAP/NPK, recovery in SSP sales and overall sales supported by marketing agreement with National Fertilisers Ltd. Meanwhile, operating margin moderated to 13.9% in fiscal 2024 from 15.9% in fiscal 2023 due to lower subsidy per tonne given fall in NBS rates compared to the raw material prices, and ramping up of utilisation of new capacities. However, operating margin subsequently recovered in the first quarter of fiscal 2025 in both with upward revision in NBS rates announced for the first half of the fiscal. Margin is expected to sustain at ~15% over the medium term due to healthy backward integration and benefits of bulk procurement, and will remain monitorable.

 

Although debt protection metrics moderated in fiscal 2024 due to lower-than-expected profitability, interest coverage ratio remained comfortable at ~3.5 times. However, the financial risk profile is expected to remain comfortable with debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio likely to sustain below 3.5 times and interest coverage ratio sustaining over 3.5 times over the medium term.

 

The Rs 1.64 lakh crore subsidy budget of the government for fiscal 2025 should suffice and hence, no major build-up is expected. Track record of timely subsidy disbursement and additional allocation in the past has kept subsidy arrears in check. Given that the fertiliser industry remains highly strategic and controlled by the government, any deferment or delay in disbursing subsidy or any change in the regulatory scenario would be monitorable.

Analytical Approach

CRISIL Ratings has applied its parent notch-up framework to factor in the strong linkages between KPL and OPIL.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the SSP industry with diversification into DAP/NPK: KPL is an established player in the SSP industry with OPIL (on consolidated level) being the second-largest manufacturer of SSP with a market share of ~9% in fiscal 2024. Products are sold under the brand, Annadata. The company benefits from the established distribution network of the group comprising 1,400 wholesalers and 15,000 dealers and retailers. Additionally, it has increased its production capacity for DAP/NPK to 3.3 lakh metric tonne per annum (TPA) in March 2023, which has led to healthy ramp up in volumes. The market position will remain strong with the established position of OPIL in the SSP industry and focus on import substitution for DAP/NPK.

 

• Strong linkages with OPIL and experienced promoters: The promoter group and OPIL hold ~74% stake in KPL, which is one of the main operating companies of the group with ~42% contribution to revenue in fiscal 2024. KPL benefits from common sourcing of raw materials for the group. Furthermore, OPIL has extended a corporate guarantee and the promoters have extended a personal guarantee to the debt facilities of KPL. The group has common directors with decades of experience in the fertiliser industry.

 

• Strong operating profitability owing to backward integration: KPL has maintained a relatively higher operating margin than peers. This is driven by strong backward integration for raw materials undertaken by the Ostwal group, with captive capacity for sulfuric acid, rock phosphate beneficiation as well as phosphoric acid. The group also has long-term supply agreement for procurement of rock phosphate with entities such as Jordan Phosphate Mines Company for import and mining companies in Rajasthan for indigenous supply. This ensures continuous availability and lower cost of production. Sustenance of the margin at ~15% over the medium term is monitorable.

 

Weaknesses:

• Significant capacity expansion leading to moderation in debt protection metrics: KPL recently undertook capex programme of ~Rs 290 crore, which was commissioned in March 2023, to add capacity of 2.4 lakh MTPA for DAP/NPK. Furthermore, the company has planned capex of Rs 300-350 crore over the next three fiscals for expansion of DAP/NPK capacity by 3.3 lakh MTPA, SSP by 1.98 lakh MTPA and matching capacities of phosphoric acid and sulfuric acid. This capex will be funded through Rs 150-175 crore of debt and the rest through internal cash accrual. While the debt would be drawn in fiscals 2025 and 2026, the capacity will be commercialised from fiscal 2027 onwards. This will lead to moderation of debt protection metrics during fiscals 2025 and 2026. Any project cost or time overruns impacting the financial risk profile will remain monitorable.

 

• Exposure to regulatory risks: Given the government’s thrust on self-sufficiency in food grain production, the fertiliser industry is important but highly controlled. Hence, players are susceptible to regulatory changes. KPL is vulnerable to delays in subsidies from the government, leading to higher reliance on working capital loans. Deferment in the disbursement of subsidies on account of under-budgeting and change in the regulatory scenario will remain monitorable.

Liquidity: Strong

Cash and equivalent were Rs 5 crore as on March 31, 2024. The sanctioned fund-based limit was utilised at 83% on average over the 12 months through June 2024. Healthy accrual of more than Rs 80 crore, expected in fiscals 2025 and 2026, is sufficient to cover annual repayment of Rs 25-35 crore as well as any incremental working capital requirement. The company is planning capex of Rs 300-350 crore, of which Rs 150-175 crore will be funded through debt and the rest via cash accrual. Liquidity is also supported by articulation of need-based support from the Ostwal group.

Outlook: Stable

The business risk profile of KPL will sustain over the medium term, driven by healthy market position in SSP, recent expansion of DAP/NPK capacity and strong operating efficiency. The financial risk profile will remain stable, driven by healthy accrual and strong linkages with the Ostwal group.

Rating sensitivity factors

Upward factors

• Significant improvement in the credit rating of OPIL by one notch or more
• Significant ramp up in capacity utilisation leading to increase in revenue while sustaining operating profitability
• Improvement in the working capital cycle resulting in lower gross current assets

 

Downward factors

• Downgrade in the credit rating of OPIL by one notch or more
• Lower-than-expected ramp up in capacity utilisation or subdued volumes leading to decline in operating margin
• Large, debt-funded capex or acquisitions weakening the financial risk profile
• Adverse impact of any regulatory/policy change

About the Company

KPL was incorporated in 2004 and taken over by the Ostwal group in 2007. It was listed on the National Stock Exchange’s Emerge Platform in 2017 and then shifted to the main platform in 2019. It manufactures SSP, DAP and NPK fertilisers. It has six plants in Meghnagar, Madhya Pradesh, with installed capacity of 1.20 lakh MT of SSP, 2.31 lakh MT of sulfuric acid, 99,000 MT of phosphoric acid, 1,324 MT of H. acid, 1.98 lakh MT of BRP (crushing) acid and 3.3 lakh MT of DAP/NPK per annum.

 

In the first quarter of fiscal 2025, the company reported revenue of Rs 281 crore with profit after tax (PAT) of Rs 16 crore, against Rs 165 crore and Rs 12 crore, respectively, in the corresponding period previous fiscal.

Key Financial Indicators*

Particulars	Unit	2024	2023
Revenue	Rs crore	924	323
Profit after tax (PAT)	Rs crore	40	27
PAT margin	%	4.38	8.28
Adjusted debt/adjusted networth	Times	1.45	1.06
Adjusted interest coverage	Times	3.53	7.87

* As per analytical adjustments made by CRISIL Ratings

Any other information: Not Applicable