| Chambal Fertilisers and Chemicals Limited | ||||||
| Rated amount enhanced | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL ratings on Chambal Fertilisers and Chemicals Limited (Chambal) continue to reflect its established market position, sustained healthy operating performance, and high financial flexibility. These strengths are partially offset by moderate, but improving, project implementation risks, leveraged capital structure, and exposure to the regulated nature of the fertiliser industry. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has combined the business and financial risk profiles of Chambal and its subsidiaries. This is because of strong financial linkages among the entities. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position in urea and Di-ammonium phosphate (DAP) especially in North India Chambal is the largest private player in the Indian urea sector by production capacity, with an 8% share in the total domestic urea production in fiscal 2018. Moreover, the company sold around 0.9 million tonne of DAP in fiscal 2018, garnering a market share of 11% of the total DAP sold in the country. It has a significant share in the North India market, supported by its strong Uttam Veer brand and a robust distribution network. Favourable location of plants (near end-user markets and feedstock source), large capacity, and low energy consumption add to the advantage. The company's urea plants are located near the head of the Hazira-Bijapur-Jagdishpur gas pipeline, thereby ensuring gas availability. Timely completion of the brownfield expansion project will further enhance its market position in the urea business. * Superior operating efficiency of fertiliser plants Chambal maintains high operating efficiencies at both the plants. Though energy consumption of the plants increased in fiscal 2017 due to planned shutdown, they continued to operate well below the pre-specified energy consumption norms. During fiscal 2018, energy consumption further improved compared to previous fiscal. Even the ongoing brownfield expansion at Gadepan is expected to have lower energy consumption norms than the existing plants. Moreover, the new urea policy (fixed incentive beyond reassessed capacity subject to maximum of import parity price of urea plus incidental charges), along with gas pooling, has aided production above reassessed capacity and, subsequently, lent more stability to overall profitability over the medium term. Operating performance for fiscal 2018 continues to be supported by healthy sales volume and operating efficiencies. Earnings before interest, tax, depreciation and amortization (EBITDA) margin and interest coverage ratio, were 10.6% and 5.1 times, respectively, as on March 31, 2018; against 10.9% and 3.4 times, respectively, in the corresponding period of the previous fiscal. Also, working capital borrowing was Rs 2,563 crore as of March 31, 2018, which improved from Rs 3,186 crore in the corresponding period of the previous fiscal. * High financial flexibility and stable cash accrual from the fertiliser business Chambal has a high degree of financial flexibility with large unutilised bank limit and ability to contract debt at competitive rates. Cash accrual from the urea business has also been stable because of the pass-through nature of feedstock costs and superior operating efficiencies. Weaknesses * Moderate, but reducing, project implementation risks Chambal is setting up a 1.34 million tonne per annum brownfield urea expansion plant at the existing site at Gadepan at a cost of USD 914 million (around Rs 6000 crore, funded in a debt-equity ratio of 78:22. As of April 30, 2018, company had incurred an amount of Rs. 4,200 crore on the project. Construction is likely to finish by August 2018 and the project should commission by January 2019. Further, presence of fixed price nature of lump sum turn-key (LSTK) contract, supporting infrastructure (including gas availability, pipeline connectivity and surplus land) at the site, advance loss of profit coverage, receipt of all equipments at site, and strong management capabilities mitigate project implementation risks to a large extent. Nonetheless, till achieving commercial operations, project will remain exposed to implementation risks; timely commissioning will, therefore, remain a key monitorable. Post commissioning risks are expected to be moderate. The urea offtake risk, in absence of guaranteed buyback clause, is offset by government's objective of achieving self-sufficiency in urea production and reducing the country's dependence on imports. Furthermore, risk associated with gas tie-up is mitigated by inclusion of proposed brownfield units in the gas pool from fiscal 2019 onwards. Chambal has also tied for its gas requirement with GAIL India Ltd ('CRISIL A1+') and Indian Oil Corporation Ltd ('CRISIL AAA/Stable/CRISIL A1+'). * Leveraged capital structure because of large working capital requirements further accentuated by debt funded expansion plans Chambal has a leveraged capital structure and moderate debt protection metrics. The company's capital structure, is constrained by large working capital borrowings following delay in subsidy disbursement by the government. Gearing is expected to deteriorate despite sale of non-fertiliser business (including shipping business) because of the ongoing urea expansion project. Nonetheless, higher cash accrual post commissioning of the project will improve capital structure over the medium term. * Exposure to risks related to regulated nature of the fertiliser industry Given government's thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Of late, government has focused on reducing subsidy without increasing prices by urging companies to adopt more efficient methods of urea production. In line with these measures, government tightens energy consumption norms periodically, impacting profits of urea players unless they improve energy efficiencies. Additionally, delay in disbursement of subsidy results in higher reliance on short-term working capital borrowing, leading to high interest costs. Furthermore, timely realisation of subsidy under the newly introduced direct benefit transfer scheme remains to be seen. |
| Outlook: Positive |
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CRISIL believes that with timely commissioning of Gadepan III unit by January 2019, Chambal's market position and operating efficiency could improve further. It continues to benefit from strong operating efficiencies and healthy cash accrual from its fertiliser business. Project implementation risks are mitigated by fixed price nature of LSTK contract, while the offtake risks are mitigated by the need to reduce import dependence on urea in the country. |
| About the Company |
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Incorporated in 1985 in Kota (Rajasthan), Chambal has the largest installed urea capacity in the private sector in India. The company had significant investments in the shipping and software businesses. In fiscal 2016, Chambal had transferred its textile division to Sutlej Textiles and Industries Ltd on slump sale basis. During September 2017, Chambal sold off its all four remaining ships, thus exiting the shipping business also. |
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
@ Letter of credit and bank guarantee limits are interchangeable |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
@ Letter of credit and bank guarantee limits are interchangeable | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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