Rating Rationale
September 05, 2022 | Mumbai
Chambal Fertilisers and Chemicals Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities RatedRs.12373.56 Crore
Long Term RatingCRISIL AA+/Stable (Reaffirmed)
Short Term RatingCRISIL A1+ (Reaffirmed)
 
Rs.4500 Crore Commercial PaperCRISIL A1+ (Reaffirmed)
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 established market position of Chambal and the superior operating efficiency of its fertiliser plants. Operating performance remains comfortable, with plants operating at over 100% utilisation and within the prescribed energy norms. Profitability of the urea division will remain immune to the rise in feedstock (natural gas) prices as this is compensated through subsidy receipts from the government. The global shortage of complex fertilisers, which has led to a spike in its prices, could affect profitability in the medium term.

 

The financial risk profile remains comfortable, driven by improved capital structure and debt protection metrics. Additional subsidies announced by the government over the past two fiscals, has significantly improved the financial risk profile of the company. The government has continued to extend the required financial support to this sector. While initially a subsidy payout of Rs 105,222 crore was budgeted for fiscal 2023, it has approved an additional payout of Rs. 110,000 crore in May 2022, to account for the unprecedented rise in raw material prices and imported fertiliser rates. This is expected to keep the working capital position steady and not let any material built-up in the subsidy receivables in fiscal 2023. Timely disbursement of this additional subsidy will help maintain the financial position of the company and remains a key rating monitorable.

 

Chambal has no large cash outflows towards capital expenditure (capex) or investments over the near term. The ratio of net debt to operating profit before depreciation, interest and taxes (OPBDIT) is expected to remain below 1.5 times over the medium term.

 

The strengths are partially offset by exposure to regulatory risks.

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 and diammonium phosphate (DAP), especially in north India

Chambal is the largest private player in the urea industry in India in terms of production capacity. Its share in the total domestic urea production has increased to 13.4%, driven by ramp-up of its Gadepan-III plant. The company has maintained its share in the non-urea fertilisers segment. It sold 0.97 million tonne of DAP/muriate of potash/nitrogen phosphorus potassium during fiscal 2022, down from 1.64 million tonne in the previous fiscal because of global shortage of the fertilisers amidst the Russia-Ukraine war. It has a significant market share in north India, supported by strong brand (Uttam Vir) and 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. Excluding the months where the plants were shut for maintenance, the Gadepan-I and -II plants operated below the energy norm of 5.500 gigacalorie per tonne during fiscal 2022 and first quarter of fiscal 2023. The Gadepan-III unit consumed less than 5.00 gigacalorie per tonne, improving the operating efficiency of the urea manufacturing business.

 

Chambal sold 3.31 million tonne of urea and 0.97 million tonne of DAP/muriate of potash/nitrogen phosphorus potassium during fiscal 2022 (3.35 million tonne and 1.64 million tonne, respectively, in the corresponding period of the previous fiscal). While uneven distribution of rainfall caused a marginal decline in urea sales, the global shortage of complex fertilisers impacted sales volume in the domestic market. During the first quarter of fiscal 2023, 0.81 million tonne of urea and 0.47 million tonne of DAP/muriate of potash/nitrogen phosphorus potassium were sold (0.81 million tonne and 0.29 million tonne, respectively, in the corresponding period of the previous fiscal).

 

Operating performance of the urea production division has remained immune to the ongoing rise in feedstock (natural gas) prices, as it is passed through entirely, to be compensated through subsidy receipts from the government. For profitability against production above reassessed capacity, wherein incentive is capped at import parity price of urea plus incidental charges, to also not be majorly impacted on considering that the imported urea prices are also high.

 

Production of the Gadepan-III unit has been restricted at 100% as there has been no defined policy for production above 100% for plants commissioned under the new urea investment policy. Amidst the rise witnessed in imported fertilizer prices, government has permitted Chambal to increase its output from this unit to beyond the installed capacity for this fiscal which will support its operating efficiency.

 

  • Comfortable financial risk profile

Additional subsidies announced by the government over the past two fiscals were mainly used to repay working capital borrowings, thereby substantially improving the capital structure and debt protection metrics of the company. Adjusted debt to adjusted networth improved to 0.75 times as on March 31, 2021 (2.94 times as on March 31, 2020). Adjusted interest coverage and net debt to OPBDIT ratios improved to 8.63 times in fiscal 2021 (4.28 times in fiscal 2020) and 1.19 times as on March 31, 2021 (4.94 times a year earlier), respectively.

 

An unprecedented rise in raw material prices (especially pooled gas prices) and imported fertiliser rates mainly during the second half of fiscal 2022, has increased the dependence on subsidy receipts from the government. The additional subsidies of Rs 60,593 crore added to the initial budget of Rs 79,530 crore announced by the government has however restricted an increase in subsidy arrears for the previous fiscal.

 

To address the continued hike in raw material and fertiliser rates, the government has been extending the required funding support, through announcement of additional subsidies. While initially a subsidy payout of Rs 105,222 crore was budgeted for fiscal 2023, it has approved an additional payout of Rs. 110,000 crores in May 2022. This is expected to keep the working capital position steady and not let any material built-up in the subsidy receivables in fiscal 2023. However, a timely disbursement of this additional subsidy which would comfort Chambal’s overall financial position, would remain a key rating monitorable.

 

Chambal has no large cash outflow towards capex or investments over the near term. Overall, net debt to OPBDIT ratio is expected to remain below 1.5 times over the medium term.

 

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 subsidy 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, thereby impacting profits of urea players unless they improve energy efficiency. The impact of this norm is mitigated by the agreed additional fixed cost of Rs 350 per tonne allowed for all urea manufacturers.

 

Fertiliser companies are also susceptible to delays in subsidy payments from the government, leading to high reliance on working capital loans. Any deferment in the disbursement of subsidy on account of under-budgeting and any change in the regulatory scenario remain key rating sensitivity factors.

Liquidity: Strong

Cash and equivalent stood at around Rs 554 crore as on March 31, 2022. Fund-based bank limit of Rs 4,000 crore was utilised at around 12% on average over the 12 months through July 2022. The bank limit utilisation has reduced significantly after disbursement of additional subsidy by the government. Healthy annual cash accrual will adequately cover term debt obligation and any incremental working capital requirement over the medium term. Absence of any major capex adds to the financial flexibility. Also, reimbursements to Chambal in Gadepan-III and project-related interest and debt obligations are denominated in dollars, which provides a natural hedge.

 

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
  • Chambal has also spent around Rs. 28 crore in CSR during fiscal 2022.
  • The company’s governance structure is characterized by 56% 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: Stable

Business and financial risk profiles will sustain over the medium term, supported by strong market position, healthy operating efficiency, and expectation of adequate subsidy budget allocation by the Government

Rating Sensitivity factors

Upward factors

  • Sustenance of total receivables (including subsidy receivables) below 30 days
  • Significant reduction in total debt leading to a net cash* positive position on a sustained basis
  • 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 2 times
  • 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 3.00 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 and pesticides.

Key Financial indicators (Consolidated)*

Particulars

Unit

2022

2021

Operating income

Rs crore

16,103

12,739

Profit after tax (PAT)

Rs crore

1,566

1,410

PAT margin

%

9.73

11.07

Adjusted debt/adjusted networth

Times

0.68

0.75

Interest coverage

Times

23.63

8.63

*As per analytical adjustment by CRISIL Ratings

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. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' 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)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs crore)

Complexity level

Rating assigned with outlook

NA

Cash Credit

NA

NA

NA

4000

NA

CRISIL AA+/Stable

NA

Letter of credit & Bank Guarantee@

NA

NA

NA

2000

NA

CRISIL A1+

NA

Non-Fund Based Limit

NA

NA

NA

1800

NA

CRISIL A1+

NA

External Commercial Borrowings^^

NA

NA

30-Sep-27

3357.35

NA

CRISIL AA+/Stable

NA

Foreign Currency Term Loan$$

NA

NA

30-Sep-27

1216.21

NA

CRISIL AA+/Stable

NA

Commercial Paper

NA

NA

7-365 days

4500

Simple

CRISIL A1+

@ Letter of credit and bank guarantee limits are interchangeable

^^ Equivalent to USD 510 million @ Rs 65.74 per US dollar

$$ Equivalent to USD 185 million @ Rs 65.74 per US dollar

Annexure – List of entities consolidated

Names of entities consolidated

Extent of consolidation

Rationale for consolidation

Chambal Infrastructure Ventures Ltd

Full

Significant operational and financial linkages

ISG Novasoft Technologies Ltd

Full

Significant operational and financial linkages

CFCL Ventures Ltd

Full

Significant operational and financial linkages

ISGN Corporation

Full

Significant operational and financial linkages

Indo Maroc Phosphore S A, Morocco

Equity method

Proportionate consolidation

 

Annexure - Rating History for last 3 Years
  Current 2022 (History) 2021  2020  2019  Start of 2019
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 8573.56 CRISIL AA+/Stable 30-03-22 CRISIL AA+/Stable 14-04-21 CRISIL AA+/Stable 30-06-20 CRISIL AA/Stable 18-06-19 CRISIL AA/Stable CRISIL AA-/Positive
      --   -- 12-02-21 CRISIL AA/Positive   -- 23-01-19 CRISIL AA/Stable CRISIL AA-/Positive
      --   -- 30-01-21 CRISIL AA/Stable   -- 22-01-19 CRISIL AA/Stable --
Non-Fund Based Facilities ST 3800.0 CRISIL A1+ 30-03-22 CRISIL A1+ 14-04-21 CRISIL A1+ 30-06-20 CRISIL A1+ 18-06-19 CRISIL A1+ CRISIL A1+
      --   -- 12-02-21 CRISIL A1+   -- 23-01-19 CRISIL A1+ CRISIL A1+
      --   -- 30-01-21 CRISIL A1+   -- 22-01-19 CRISIL A1+ --
Commercial Paper ST 4500.0 CRISIL A1+ 30-03-22 CRISIL A1+ 14-04-21 CRISIL A1+ 30-06-20 CRISIL A1+ 18-06-19 CRISIL A1+ CRISIL A1+
      --   -- 12-02-21 CRISIL A1+   -- 23-01-19 CRISIL A1+ --
      --   -- 30-01-21 CRISIL A1+   -- 22-01-19 CRISIL A1+ --
Fixed Deposits LT   --   --   -- 30-06-20 Withdrawn 18-06-19 F AA+/Stable F AA/Positive
      --   --   --   -- 23-01-19 F AA+/Stable --
      --   --   --   -- 22-01-19 F AA+/Stable --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Rating
Cash Credit 250 CRISIL AA+/Stable
Cash Credit 1000 CRISIL AA+/Stable
Cash Credit 600 CRISIL AA+/Stable
Cash Credit 200 CRISIL AA+/Stable
Cash Credit 40 CRISIL AA+/Stable
Cash Credit 750 CRISIL AA+/Stable
Cash Credit 110 CRISIL AA+/Stable
Cash Credit 300 CRISIL AA+/Stable
Cash Credit 410 CRISIL AA+/Stable
Cash Credit 250 CRISIL AA+/Stable
Cash Credit 90 CRISIL AA+/Stable
External Commercial Borrowings^^ 1352.27 CRISIL AA+/Stable
External Commercial Borrowings^^ 986.1 CRISIL AA+/Stable
External Commercial Borrowings^^ 1018.98 CRISIL AA+/Stable
Foreign Currency Term Loan$$ 1216.21 CRISIL AA+/Stable
Letter of credit & Bank Guarantee@ 120 CRISIL A1+
Letter of credit & Bank Guarantee@ 110 CRISIL A1+
Letter of credit & Bank Guarantee@ 300 CRISIL A1+
Letter of credit & Bank Guarantee@ 400 CRISIL A1+
Letter of credit & Bank Guarantee@ 50 CRISIL A1+
Letter of credit & Bank Guarantee@ 500 CRISIL A1+
Letter of credit & Bank Guarantee@ 380 CRISIL A1+
Letter of credit & Bank Guarantee@ 90 CRISIL A1+
Letter of credit & Bank Guarantee@ 50 CRISIL A1+
Non-Fund Based Limit 1800 CRISIL A1+

@ Letter of credit and bank guarantee limits are interchangeable

^^ Equivalent to USD 510 million @ Rs 65.74 per US dollar

$$ Equivalent to USD 185 million @ Rs 65.74 per US dollar

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Fertiliser Industry
CRISILs Approach to Recognising Default
CRISILs Criteria for Consolidation
CRISILs Criteria for rating short term debt

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