| Chambal Fertilisers and Chemicals Limited | ||||||
| Rated amount enhanced; FD withdrawn | ||||||
| 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 has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities and commercial paper of Chambal Fertilisers and Chemicals Limited (Chambal). CRISIL has also withdrawn its rating on the fixed deposit programme at the company's request as it has no outstanding fixed deposits. The withdrawal is in line with CRISIL's policy on withdrawal of fixed deposit instruments. |
| 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 owing to strong financial linkages among the entities. |
| Key Rating Drivers & Detailed Description |
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Strengths * Established market position in the urea and diammonium phosphate (DAP) especially in North India Chambal is the largest private player in the Indian urea sector by production capacity. It increased its share in the total domestic urea production to 13.4% in fiscal 2020 from 10.4% in the previous fiscal, driven by ramp-up of Gadepan-III plant (about 100% plant utilisation). Chambal continues to maintain its share in the non-urea fertilisers also. The company sold 0.98 million tonne of DAP/nitrogen phosphorus potassium during fiscal 2020 (0.82 million tonne was sold in fiscal 2019). It has a significant share in the North India market, supported by its strong brand, Uttam Veer, 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 near the Hazira-Bijapur-Jagdishpur gas pipeline, thereby ensuring gas availability. * Superior operating efficiency of fertiliser plants Chambal maintains high operating efficiencies at all the plants and continues to operate well below the pre-specified energy consumption norms. The Gadepan-I and II operated at 5.479 and 5.399 gigacalories (Gcal)/tonne, respectively, during fiscal 2020 against the energy norms of 5.500 Gcal/tonne. The newly commissioned unit, Gadepan-III, operated at below 5.000 Gcal/tonne for most part of the year and has subsequently improved the operating profitability for Chambal; stabilisation of this unit will further boost the operating margin. Operating performance in fiscal 2020 continues to be supported by healthy fertiliser sales volume of 4.34 million tonne (3.58 million tonne in the previous fiscal). Utilisation remained healthy at 115% for Gadepan-I and II (123% during the previous fiscal). Profitability above production above reassessed capacity, where incentive is capped at import parity price of urea plus incidental charges, is expected to be healthy in fiscal 2021 owing to lower pooled gas prices. Gadepan-III production was restricted at nearly 100% as there is no defined policy for production above 100% for plants commissioned under the new urea investment policy. Any favourable policy by Government of India for production above 100% for Gadepan III should support operating profits. Government of India has also approved the proposal for additional fixed cost for urea players; Chambal is entitled to receive additional fixed cost of Rs 350 per tonne of urea till the reassessed capacity and is expected to support the profitability going forward. Since this benefit is to be provided on a retrospective basis, from fiscal 2015; it has been factored in fiscal 2020 and will lead to additional cash flow for the company. * High financial flexibility and stable cash accrual from the fertiliser business Chambal has a high degree of financial flexibility with strong ability to contract debt at competitive rates. Since a large part of project related debt is in foreign currency, and it utilises commercial paper for meeting its working capital requirement, its borrowings cost is very competitive. Also, it has large unutilised bank lines and healthy cash accrual that aids financial flexibility. Cash accrual from the urea business continues to be stable because of the pass-through nature of feedstock costs and superior operating efficiencies. Weaknesses * Leveraged capital structure Chambal has a leveraged capital structure and moderate debt protection metrics due to large working capital borrowing following delay in subsidy disbursement by the government and debt raised for Gadepan-III plant. Gearing and debt/operating profit before depreciation, interest, and taxes (OPBDIT) stand at 2.8 times and 4.9 times, respectively, as on March 31, 2020. However, with higher cash accrual from Gadepan-III unit and gradual repayment of the long-term debt, the capital structure is expected to correct over the medium term. Gearing may moderate to 2.0-2.5 times and debt/OPBDIT may reduce to 4.0-4.5 times by end of fiscal 2021. * Exposure to risks related to regulated nature of the fertiliser industry Given the government's thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Of late, the 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, the government tightens energy consumption norms periodically, impacting profits of urea players unless they improve energy efficiencies. This is partly offset by the agreed additional fixed cost of Rs 350 per tonne to all urea manufacturers by the government. However, any delay in disbursement of subsidy under the direct benefit transfer scheme may lead to higher reliance on short-term working capital borrowing, thereby increasing interest costs; hence, this remains a key rating sensitivity factor. |
| Liquidity Strong |
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Liquidity is strong with cash and cash equivalents of Rs. 168 crores as on March-2020 and large unutilised bank lines. Average bank limit utilization is 30% (limits: Rs. 5725 crore) for the 12 months through May-2020. Company utilizes commercial paper for meeting the working capital requirements. Liquidity is further support by healthy cash accruals of more than Rs. 1300 crores for repayment of long term borrowings. No major capex plans over the medium term adds to the financial flexibility. Furthermore, the reimbursements to Chambal in Gadepan III and the project related interest and debt repayments are dollar denominated providing a natural hedge. |
| Outlook: Stable |
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Chambal's business performance should sustain with strong market position and operating efficiency from its fertiliser business. |
| About the Company |
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Chambal, incorporated in 1985, is a Kota (Rajasthan)-based company that has the largest installed urea capacity of 3.00 million tonne (1.27 million tonne of urea unit at Gadepan-III commissioned in January 2019) in the private sector. The company also trades in complex fertilisers and pesticides. During fiscal 2020, the company sold and transferred the assets and liabilities of its software subsidiaries. Also, after its subsidiary, India Steamship Pte Ltd, got liquidated and was struck off from the register of Accounting and Corporate Regulatory Authority, Chambal now functions purely as a fertiliser and agricultural-inputs entity. |
| Key Financial Indicators (Consolidated)* | ||||||||||||||||||||||||
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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 and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^^Equivalent to USD 510 Mn @ 65.74 USD/INR rate $$Equivalent to USD 185 Mn @ 65.74 USD/INR rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Instruments Withdrawn | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of Entities Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
**liquidated on February 28, 2019 ***liquidated and name struck off from the register of ACRA on April 6, 2020 |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
^^Equivalent to USD 510 Mn @ 65.74 USD/INR rate $$Equivalent to USD 185 Mn @ 65.74 USD/INR rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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