Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities of Chambal Fertilisers and Chemicals Limited (Chambal) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil AA+’. The rating on the short-term bank facilities and commercial paper have been reaffirmed at ‘Crisil A1+’.

 

The revision in outlook factors in the expected stability in Chambal’s business risk profile owing to sustained superior operating efficiency of the urea plants, the company’s established market position in the urea segment and cash flow diversification expected owing to ongoing improvement in scale of operations of the agro-chemicals segment and commercialisation of technical ammonium nitrate (TAN) business by the end of fiscal 2026. The non-subsidy business including agrochemicals and TAN shall contribute over 25% to the operating profitability in the medium term compared with less than 10% in fiscal 2025. The company has also shown resilience in trading segment profitability in fiscal 2025.

 

While Chambal’s existing urea plants are operating efficiently compared to normative norms and generating healthy accrual, the diversification from non-subsidy businesses will aid in mitigating risk due to any change in regulatory policy.

 

Moreover, the financial risk profile of the company is expected to strengthen further, driven by improved capital structure and strong debt protection metrics. The company had reported net cash surplus of ~Rs 2,985 crore as on December 31, 2024, with entire term debt for G-III prepaid due to healthy accrual and timely receipt of subsidy over the last 4-5 years. The company is expected to maintain a healthy net cash surplus due to strong accrual, expected steady working capital position and no significant capital expenditure (capex) plans. Crisil Ratings expects net leverage to remain below 1 time over the medium term even in case of any debt-funded capex. This will remain monitorable.

 

The ratings continue to reflect the established market position of Chambal, and the superior operating efficiency of its fertiliser plants. The operating performance remained strong with revenue of Rs 14,197 crore and earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 2,320 crore for the first nine months of fiscal 2025 as against Rs 15,323 crore and Rs 1,877 crore, respectively, for the corresponding period last fiscal. The manufacturing plants operated over 100% utilisation and lower than prescribed energy norms, leading to energy efficiency savings. The profitability of the urea division remains immune to the rise seen in feedstock (natural gas) prices, with the increase compensated through subsidy receipts from the government.

 

Chambal has no large debt-funded capex, acquisitions or investments planned in the near term. The TAN project is progressing as per timelines with the capex will be funded through internal accrual. Crisil Ratings expects healthy contribution from this business with expected commercialisation in January 2026 and increasing demand from coal mining segment. The crop protection chemicals business reported strong operating performance with revenue of Rs 887 crore and Ebitda margin of 23% for the first nine months of fiscal 2025 compared with Rs 745 crore and 20%, respectively, for the corresponding period last fiscal driven by strong product launches. Ramp up in these segments aiding in cash flow diversification from fertiliser business will be monitorable.

 

Moreover, the government has extended financial support to the fertiliser sector through additional subsidies in the past two fiscals. The announced subsidy of around Rs 1.91 lakh crore in fiscal 2026 will be sufficient to meet the requirement. This, combined with healthy accrual and surplus liquidity, should be sufficient for incremental working capital requirement.

 

The above strengths are partially offset by exposure to regulatory risks. Any tightening of energy efficiency norms for the urea plants particularly Gadepan-I and Gadepan-II or change in policy for Gadepan-III impacting the operating performance will remain a key rating sensitivity factor.

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, especially in north India: Chambal is the largest private player in the urea industry in India in terms of production capacity. Its share in total domestic urea production was ~11% in fiscal 2024. It has a significant market share in north India, including the trading segment, 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.

 

Overall profitability is driven by the Gadepan-III plant under the new investment policy. This policy is valid for eight years till the end of December 2026. Any change in this policy impacting on the profitability of this unit will remain monitorable.

 

The operating performance of the urea production division remains immune to the rise in feedstock (natural gas) prices, as it is passed through entirely, to be compensated through subsidy receipts from the government.

 

Post energy efficiency capex in the fourth quarter of fiscal 2024, the Gadepan-I and -II plants operated below 5.20 gigacalorie per tonne in fiscal 2025 which is well below the energy norm of 5.50 gigacalorie per tonne. While there maybe tightening of energy norms, the same is cushioned by further scope of energy efficiency and healthy fixed cost reimbursement for these plants. The Gadepan-III unit consumed less than 5.00 gigacalorie per tonne which is best in class, improving the operating efficiency of the urea manufacturing business. Hence, the plants are expected to operate below the current prescribed norms over the medium term.

 

Strong financial risk profile: Adjusted gearing is estimated nil as on March 31, 2025, compared with 0.3 time a year earlier. The company had reported net cash surplus of Rs 2,985 crore as on December 31, 2024, compared with ~Rs 260 crore as on March 31, 2024, due to healthy accrual and low working capital intensity. adjusted interest coverage remained strong estimated over 20 times in fiscal 2025 compared with over 10 times in fiscal 2024. The debt protection metrics are likely to remain strong over the medium term with healthy profitability and no large debt-funded capex plans or acquisition plans in the near term. The capex towards TAN plant will be funded through internal accrual. Overall, net debt to OPBDIT ratio is expected to remain below 1.25 times over the medium term. This will remain key monitorable.

 

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 subsidies 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 under New Urea Policy, 2015. The current energy norms are applicable till the end of fiscal 2025 which may further get tightened for players including Chambal and is likely to impact the industry’s profitability. Further, the policy for reimbursement of plants under the New Urea Investment Policy (NUIP), 2012, beyond eight years has not been announced yet and can have a material impact on the profitability for players under NUIP beyond policy regime. Any such change in policy regime is monitorable.

 

Despite regular subsidy payments in the recent 4-5 fiscals and adequate subsidy budget announced for fiscal 2025, fertiliser companies are still susceptible to any delays in subsidy payments from the government, leading to high reliance on working capital debt. Deferment in the disbursement of subsidy on account of under-budgeting and change in the regulatory scenario will remain key rating sensitivity factors.

Liquidity: Strong

Cash and equivalent were ~Rs 2,985 crore as of December 2024. Fund-based bank limit of Rs 4,000 crore was utilised minimally over the 12 months through February 2025. Strong annual cash accrual expected over Rs 2,000 crore over the near term should adequately cover dividend, routine capex and incremental working capital requirement.

 

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:

• The company has set up a zero liquid discharge plant for treatment of effluents, in its third urea plant (Gadepan-III plant), which has resulted in lower intake of fresh water from the river. The company has also developed a dense green belt in the Gadepan campus.
• It aims to reduce its environmental footprint by investing in eco-friendly and reliable technologies and practices.
• On the social front, the company continues to invest in ensuring a work environment, that is safe, hygienic and humane.
• The company’s governance structure is characterised by 50% of its board comprising independent directors, strong investor grievance redressal and extensive disclosure.

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: Positive

The financial risk profile will likely strengthen further with no significant capex plans and expectation of adequate subsidy budget allocation by the government. Business profiles will sustain over the medium term, supported by strong market position, healthy operating efficiency and diversification.

Rating sensitivity factors

Upward factors

• Significant growth in non-subsidy business segments, leading to diversification in revenue and high accrual
• No stretch in subsidy receivable or significant debt-funded capex, leading to sustenance of a net cash* positive position
• Substantial positive impact of any regulatory/policy change

* Net cash = cash and equivalents - total debt

 

Downward factors

• Larger-than-expected, debt-funded capex/acquisition or significant stretch in working capital cycle, leading to net debt to OPBDIT ratio persistently remaining above 1 time
• Substantial adverse impact of any regulatory/policy change

About the Company

Incorporated in 1985 and based in Kota, Rajasthan, Chambal has the largest installed urea capacity of 3.30 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, crop protection chemicals and specialty nutrients.

 

During the first nine months of fiscal 2025, the company achieved profit after tax (PAT) of Rs 1,519 crore on total income of Rs 14,197 crore as against Rs 1,179 crore and Rs 15,323 crore, respectively, during the corresponding period of the previous fiscal.

Key financial indicators (consolidated)*

Particulars	Unit	2024	2023
Operating income	Rs crore	18,028	27,825
PAT	Rs crore	1,276	1,034
PAT margin	%	7.1	3.7
Adjusted debt/adjusted networth	Times	0.2	0.5
Interest coverage	Times	13.4	6.5

*As per analytical adjustment by Crisil Ratings

Any other information: Not Applicable