Detailed Rationale

CRISIL Ratings has reaffirmed its ratings on the bank facilities of Coromandel International Limited (Coromandel) at ‘CRISIL AAA/Stable/CRISIL A1+’.

 

The ratings continue to reflect its robust market position in India’s phosphatic-fertiliser market and  strong operating efficiency supporting a healthy business risk profile. Coromandel continues to remain the largest single super phosphate player in the domestic market, with a share of ~15% in fiscal 2023; and the second-largest player in other complex phosphatic (DAP+NPK) fertilisers with a primary share of ~15%. Financial risk profile remains robust, with a continued net debt-free position.

 

Revenue was Rs 18,146 crore and Ebitda (earnings before interest, taxes, depreciation, and amortization) Rs 2,126 crore for the nine months through December 2023, against Rs 24,152 and Rs 2,523, respectively, in the corresponding period previous fiscal. Revenue and operating profitability weakened on account of the nutrient segment (contributes >80% to the overall earnings before interest and tax [EBIT]) due to a sharp downward revision in NBS (nutrient based subsidy) rates by the government for the second-half of fiscal 2024. However, backward integration measures undertaken, and favourable supply agreements have cushioned the impact on profitability. The annual Ebitda per tonne is likely to be maintained at around Rs 5,000 in the near term on the expectation of revision of NBS rates, in line with raw material prices. Any significant revision in NBS rates and resultant impact on operating profitability will remain monitorable over the medium term.

 

Furthermore, the company has announced capital expenditure (capex) to increase the backward integration capacity of both its key raw materials, phosphoric acid and sulphuric acid, at the Kakinada (Andhra Pradesh) plant, which was the company’s only non-integrated plant. This will further help improve availability of raw material and cushion profitability over the medium term.

 

The government has also demonstrated its financial support to the fertiliser sector via additional subsidies in the past two fiscals. The announced subsidy of ~Rs 1.64 lakh crore for fiscal 2025 should be sufficient to meet the requirement. This, combined with healthy accrual and surplus liquidity, should be sufficient to fund working capital requirement, thus enabling it to maintain its net debt-free position over the medium term. Since timely disbursement of the entitled subsidy is crucial for the company to maintain its robust financial risk profile, any change in policy support or sustained delays in payouts would remain monitorable.

 

The ratings continue to reflect the strong position of Coromandel in India’s phosphatic-fertiliser market, strong operating efficiency supported by backward-integration facilities, and robust financial risk profile. These strengths are partially offset by exposure to risks related to the regulated nature of the fertiliser industry in India.

 

CRISIL Ratings notes that there was a gas leak in the ammonia pipeline of the Ennore plant (Tamil Nadu) in December 2023, and is currently not operational. It contributes ~8% to the overall production of DAP (di-ammonium phosphate) /NPK. However, the production loss should be compensated via debottlenecking of capacities in the other plants. Also, the company has taken the necessary safety measures and is complying with the concerned authorities. Any negative impact arising out of this issue on the credit risk profile will be monitorable.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of Coromandel and its associate and subsidiary companies, considering the operational, managerial, and financial linkages among them.

 

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:

Strong position in India’s phosphatic-fertiliser market

Coromandel is the second-largest player in the phosphatic-fertiliser industry in India with a primary market share of ~15% in DAP/NPK; and the largest share of ~15% in SSP for fiscal 2023. Its market position is underpinned by an entrenched and leading position in Andhra Pradesh and Telangana – India’s largest complex-fertiliser market – and a wide product portfolio. The company has also been gradually increasing the sale of non-subsidy-based products, including crop protection, speciality nutrients (secondary and micro-nutrients [sulphur, zinc, calcium, and boron], water-soluble fertilisers and compost), and bio products (non-fertiliser segments contributed ~10% to the overall revenue in the nine months through fiscal 2024). It operates around 750 retail outlets and has tied up with over 14,000 dealers, through which it sells fertilisers, crop protection chemicals, speciality nutrient products, seeds, sprayers, veterinary products, among others.

 

Strong operating efficiency

Operations benefit from economies of scale, better raw material procurement due to established relationships with suppliers, captive production of phosphoric acid, superior plant infrastructure, and low handling and transportation costs. Captive phosphoric acid meets close to 50% of the company’s total requirement while captive sulfuric acid meets ~60%. There are further plans to improve the backward integration in the near term. Operating efficiency is also supported by ability to adjust the product mix (between DAP and other complex fertilisers).

 

Scale of operations of the agrochemicals business has also improved, with healthy Ebitda of Rs 408 crore in fiscal 2023 compared with Rs 413 crore in the previous fiscal. Over the medium term, focus on increasing the share of non-subsidy-based products will reduce the vulnerability of profits to changes in the government subsidy policies.

 

Robust financial risk profile

Coromandel continued to maintain a net debt-free position as on December 31, 2023. Moderate annual capex plans of Rs 600-800 crore and incremental working capital requirement over the medium term will be met through yearly cash accrual of Rs 1,500-1,700 crore. Accordingly, the company is expected to remain net debt-free over the medium term. Any larger-than-expected debt-funded capex or acquisitions that could materially alter capital structure would remain monitorable.

 

Weaknesses:

Exposure to regulated nature of the fertiliser industry and volatility in raw material prices

The fertiliser industry is strategic, but highly controlled, with fertiliser subsidy being an important component of profitability. The phosphatic-fertiliser industry was brought under the NBS regime from April 1, 2010. Under this scheme, the Government of India fixes the subsidy payable on nutrients for the entire fiscal (with an option to review this every six months), while retail prices are market driven. Manufacturers of phosphatic fertilisers are dependent on imports for their key raw materials, such as rock phosphate and phosphoric acid. Cost of raw materials accounts for about 75% of the operating income. The regulated nature of the industry and susceptibility of complex fertiliser players (including Coromandel) to raw material price volatility under the NBS regime continues to be key rating sensitivity factors.

 

Fertiliser companies are also exposed to subsidy payments from the government, which may get delayed, leading to reliance on short-term working capital borrowings.

Liquidity: Superior

Cash and equivalent stood at ~Rs 2,900 crore and unutilised fund-based limit was around Rs 2,400 crore, as on September 30, 2023. Annual cash accrual of Rs 1,500-1,700 crore with no term debt repayment, and moderate annual capex of Rs 600-800 crore over the medium term further support liquidity.

Outlook: Stable

Business risk profile will remain comfortable over the medium term, with continued focus on improving operating efficiency and diversification of operations into the agrochemicals segment. Continued and timely release of subsidies by the government will remain key to maintaining strong financial risk profile.

Rating Sensitivity Factors

Downward Factors

• Significant and sustained weakening of operating performance, with unfavourable change in government policies
• Sizeable rise in subsidy receivables or any large, unexpected debt-funded capex or acquisitions weakening financial risk profile; resulting in net debt to Ebitda ratio increasing to beyond 1 time on a sustained basis

About the Company

Coromandel, one of the flagship companies of the Murugappa group, was established as a private company in 1961. At present, E.I.D. Parry (India) Ltd, a Murugappa group company, owns 56.20% of Coromandel as on December 31, 2023.

 

The company’s business structure is bifurcated into two segments: nutrient and other allied businesses, and crop protection business. The nutrient and other allied segment includes the manufacturing and marketing of phosphatic fertilisers, speciality nutrients, organic fertilisers and retail. The crop protection business includes manufacturing of bio-based and chemical pesticides.

 

The company has the capacity to manufacture over 3.6 million tonne (MT) of fertilisers and pesticides and 1.0 million MT of single super phosphate per annum. Besides this, the company manufactures water soluble fertiliser, biopesticides and agrochemical technicals and formulations.

 

For the first nine months of fiscal 2024, profit after tax (PAT) was Rs 1,477 crore on total income of Rs 18,146 crore, against Rs 1,766 crore and Rs 24,152 crore, respectively, during the corresponding period previous fiscal.

Key Financial Indicators

Particulars	Unit	2023	2022
Operating income	Rs.Crore	29,628	19,111
Profit After Tax (PAT)	Rs.Crore	2,013	1,528
PAT Margin	%	6.8	8.0
Adjusted debt/adjusted networth	Times	0.0	0.0
Adjusted interest coverage	Times	15.46	29.9

As per the CRISIL Ratings analytical adjustment;

Any other information: Not Applicable

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	0.27	NA	CRISIL AAA/Stable
NA	Cash credit**	NA	NA	NA	1000.00	NA	CRISIL AAA/Stable
NA	Cash credit$	NA	NA	NA	50.00	NA	CRISIL AAA/Stable
NA	Cash credit@@	NA	NA	NA	200.00	NA	CRISIL AAA/Stable
NA	Cash credit%%	NA	NA	NA	57.40	NA	CRISIL AAA/Stable
NA	Short-term loan^^	NA	NA	NA	200.00	NA	CRISIL A1+
NA	Short-term loan^^	NA	NA	NA	500.00	NA	CRISIL A1+
NA	Cash credit#	NA	NA	NA	120.00	NA	CRISIL AAA/Stable
NA	Short-term loan%	NA	NA	NA	20.00	NA	CRISIL A1+
NA	Cash credit	NA	NA	NA	350.00	NA	CRISIL AAA/Stable
NA	Proposed fund-based bank limits	NA	NA	NA	35.73	NA	CRISIL AAA/Stable
NA	Letter of credit and bank guarantee	NA	NA	NA	2846.6	NA	CRISIL A1+
NA	Letter of credit and bank guarantee*	NA	NA	NA	300.00	NA	CRISIL A1+
NA	Letter of credit and bank guarantee!	NA	NA	NA	1450.00	NA	CRISIL A1+
NA	Letter of credit and bank guarantee&	NA	NA	NA	2300.00	NA	CRISIL AAA/Stable
NA	Credit Exposure Limits / Loan Exposure Risk Limits	NA	NA	NA	70.0	NA	CRISIL AAA/Stable

^Sanctioned OD facilities against FD

**Fund-based limit can be utilised for non-fund utilisation, but not vice versa

$Fully interchangeable with letter of credit (LC) limit

@@Fully interchangeable with short-term debt and non-letter of credit reimbursement finance (NLRF) limit up to Rs 200 crore.

%%Limit sanctioned USD 70 million. Fully interchangeable with letter of credit, bank guarantee, short-term loan and buyer’s credit

^^Fund-based limit can be utilised for non-fund utilisation and vice versa

#Limits sanctioned Rs 120 crore under corporate commercial card

%Fully interchangeable with LC, standby letter of credit (SBLC)

*Interchangeable with SBLC. One-way interchangeability from LC to CC limit up to Rs 300 crore

!Interchangeable with stand-by letter of credit (SBLC) up to Rs 1,450 crore

&Fully interchangeable with SBLC up to Rs 2,300 crore and interchangeable with bank guarantee limit up to Rs 400 crore and OD up to Rs 50 crore