Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Madhya Bharat Agro Products Ltd (MBAPL).

 

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

 

Revenue moderated to Rs 824 crore for fiscal 2024, from Rs 985 crore in fiscal 2023 despite ramp up in of the phosphatic fertilisers (diammonium phosphate [DAP]/nitrogen, phosphorus and potassium [NPK]) plants that were setup recently. This revenue moderation is due to subdued volumes in SSP sales in line with 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 1.2 lakh metric tonne per annum (MTPA) DAP/NPK was expanded in March 2023. Healthy revenue growth is expected in fiscal 2025, with optimum utilisation of the DAP/NPK capacity and recovery in SSP sales and overall sales supported by the marketing agreement with National Fertilisers Ltd. Meanwhile, the operating margin moderated to 12.5% in fiscal 2024 (from 21.6% in fiscal 2023) due to lower subsidy per tonne given the fall in NBS rates compared to the raw material prices as the company ramped up the utilisation of new capacities. However, the margin has subsequently recovered in the first quarter of fiscal 2025, with upward revision in NBS rates announced for the first half of fiscal 2025. The operating 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 ~4.1 times. Debt protection metrics may moderate in the near term due to the planned capex of ~Rs 650-700 crore (of which Rs 300-350 crore would be funded via debt) for expansion of fertiliser capacities and matching capacities for intermediates. However, the financial risk profile is expected to remain comfortable, with debt to earnings before interest, tax, depreciation and amortisation ratio likely to sustain below 4 times and interest coverage ratio above 2.75 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 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 MBAPL and OPIL.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the SSP industry with diversification into DAP/NPK: MBAPL is a prominent player in the SSP industry with OPIL (on a consolidated level including MBAPL) being the second-largest manufacturer of SSP with market share of ~9% in fiscal 2024. Its products are sold under the well-known Annadata brand. The group has an established distribution network of the group, comprising 1,400 wholesalers and 15,000 dealers and retailers. Additionally, it had increased its production capacity for DAP/NPK from 1.2 lakh MTPA to 2.4 lakh MTPA in March 2023, which has witnessed healthy ramp up in production and hence volumes. Furthermore, the company has entered into a marketing agreement with National Fertilisers Ltd to increase its distribution reach. MBAPL is likely to maintain its healthy market position, backed by the established position of OPIL in the SSP industry and the focus on import substitution for DAP/NPK.

 

• Strong linkages with OPIL and experienced promoters: The promoter group and OPIL hold ~74% stake in MBAPL, which is the main operating company of the group with ~40% contribution to revenue in fiscal 2024. It 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 MBAPL. The group has common directors, with decades of experience in the fertiliser industry.

 

• Strong operating profitability due to backward integration: OPIL has maintained a relatively higher operating margin than peers, driven by strong backward integration for raw materials undertaken by the Ostwal group with captive capacity for sulfuric acid, rock phosphate beneficiation and 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 Rajasthan mining companies for indigenous supply. This ensures continuous availability and lower cost of production. The operating margin is projected at ~15% over the medium term and will be a key monitorable.

 

Weaknesses:

• Moderation in debt protection metrics owing to debt-funded capacity expansion: MBAPL undertook a capex in March 2023 to increase capacity of DAP/NPK (to 2.4 lakh MTPA from 1.2 lakh MTPA). The capacity utilisation of the DAP/NPK plant reached 53% in the first quarter of fiscal 2024. Ramp-up in capacity utilisation will remain monitorable.

 

Furthermore, the company has planned capex of ~Rs 400-450 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 250 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 a key monitorable.

 

• Exposure to regulatory risks in the fertiliser industry: 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. Fertiliser players are susceptible to delays in subsidies from the government, leading to higher reliance on working capital loans. Any deferment in the disbursement of subsidies on account of under-budgeting and any change in the regulatory scenario remain key rating sensitivity factors.

Liquidity: Strong

Cash and equivalent were Rs 13 crore as on March 31, 2024. The sanctioned fund-based limit was utilised at about 85% during the 12 months through June 2024. Cash accrual is projected at more than Rs 75 crore per annum for fiscals 2025 and 2026, sufficient to cover annual repayment of Rs 15-20 crore as well as any incremental working capital requirement. The company is planning capex of ~Rs 400-450 crore over the next three fiscals, of which ~Rs 250 crore will be funded by 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 MBAPL will sustain over the medium term, driven by healthy market position in SSP, ramp up in DAP/NPK capacity and strong operating efficiency. The financial risk profile will remain stable, led by healthy cash accrual and strong linkages with the Ostwal group.

Rating sensitivity factors

Upward factors

• Upgrade in the credit rating of OPIL by 1 or more notches
• Significant ramp up in capacity utilisation, leading to increase in scale of operations whilst 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 1 or more notches
• Lower-than-expected ramp up in capacity utilisation or subdued volumes, leading to decline in operating margin
• Large, debt-funded capex or acquisitions
• Adverse impact of any regulatory/policy change

About the Company

MBAPL was incorporated in 1997 and taken over by the Ostwal group in 2004. It was listed on the small and medium enterprises platform of National Stock Exchange in 2016 and then shifted to the main platform in 2019. It manufactures SSP, DAP and NPK fertilisers. It has two plants in Sagar, Madhya Pradesh, with installed capacity of 2.4 lakh MTPA of SSP, 1.65 lakh MTPA of sulfuric acid, 49,500 MTPA of phosphoric acid, 1.89 lakh MTPA of beneficiated rock phospahte crushing and 2.4 lakh MTPA of DAP/NPK.

 

The company reported revenue of Rs 200 crore and profit after tax (PAT) of Rs 11 crore in the first quarter of fiscal 2025, compared to Rs 149 crore and Rs 7 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators*

Particulars	Unit	2024	2023
Revenue	Rs crore	824	985
PAT	Rs crore	25	124
PAT margin	%	3.02	12.6
Adjusted debt/adjusted networth	Times	0.83	0.98
Adjusted interest coverage	Times	4.1	13.07

* As per analytical adjustments made by CRISIL Ratings

Any other information: Not Applicable