| Coromandel International Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+ / Stable / CRISIL A1+ ' | ||||||
| Rating Action | ||||||
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| 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 Coromandel International Ltd (Coromandel). CRISIL Ratings has also withdrawn its rating on Coromandel’s bank loan worth Rs 2,000 crore and proposed bank facilities at the entity's request. The withdrawal is in line with CRISIL Ratings' policy on withdrawal of bank loan ratings.
The ratings continue to reflect Coromandel’s robust market position in India’s phosphatic-fertiliser market and strong operating efficiency. The ratings also factor in a strong financial risk profile, driven by robust liquidity. These strengths are partially offset by exposure to risks related to regulated nature of the fertiliser industry in India and to volatility in raw material prices.
Fertiliser demand increased significantly in first half of fiscal 2021, compared to previous fiscal due to above-normal monsoon with good spatial and temporal distribution. Coromandel reported fertiliser sales of 2.32 million tonne (MT) for first half of fiscal 2021 compared to 2.00 MT during the similar period previous fiscal. Operating performance remained strong during the first half of fiscal 2021, driven by higher volumes and subdued raw material prices. Subsequently, operating profit before depreciation interest and taxes (OPBDIT) margin improved to 16% from 13%. Working capital intensity continues to be sizeable due to high subsidy receivables. However, the government has recently announced additional subsidy of Rs 65,000 crore under Aatma Nirbhar Bharat Package 3.0. This is expected to clear the subsidy arrears of the industry and improve the financial risk profile. However, timelines of disbursement of additional subsidy and fertilizer subsidy budget for fiscal 2022 will remain key monitorables. |
Analytical Approach For arriving at the ratings, 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 between these entities.
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
The company is the second-largest player in the phosphatic-fertiliser industry in India with a market share of around 17%. 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 gypsum (a by-product from the manufacture of phosphoric acid). During April 2018, it also acquired the bio-pesticides business of E.I.D. Parry (India) Ltd (‘CRISIL AA-/Stable/CRISIL A1+’), along with the latter's wholly owned subsidiary, Parry America, Inc, USA, which has further diversified the product profile under the crop protection business. The company’s brand, Gromor, has strong recall among customers and commands a premium in its key markets. It also has its own retail outlets, Mana Gromor Centres, through which it sells fertilisers, crop protection chemicals, speciality nutrient products, seeds, sprayers, veterinary products, and others. It has around 800 stores in Andhra Pradesh, Telangana, Karnataka and Maharashtra.
Operations derive benefits from economies of scale, assured raw material procurement due to an established relationship with suppliers, captive production of phosphoric acid, superior plant infrastructure, and low handling and transportation costs. Expansion of the phosphoric acid capacity of the Vishakhapatnam plant has been completed in October 2019, thus making this unit self-sufficient. The operating efficiency is also supported by the ability to adjust the product mix (between di-ammonium phosphate and other complex fertilisers).
Increasing share of non-subsidy-based products, such as specialty nutrients, crop protection, and retail business has also reduced vulnerability of profits to changes in the government’s subsidy policies. OPBDIT margin remained healthy at 10.7% and 13.2% during fiscals 2019 and 2020, respectively. The margin improved further to 16.0% in the first half of fiscal 2021 and is expected to remain healthy over the medium term due to subdued raw material prices.
Debt protection metrics are comfortable and the capital structure healthy. Interest coverage and net cash accrual to total debt ratios were 7.50 times and 0.68 time, respectively, in fiscal 2020, as against 5.80 times and 0.20 time in fiscal 2019. Gearing should remain below 1 time over the medium term (0.4 time as on March 31, 2020), supported by the absence of any long-term debt and nil capital expenditure (capex) or acquisition being funded through internal cash accrual. The company does not have significant capex plans apart from some debottlenecking projects for its fertiliser units. Further, all the borrowings are for working capital, largely to fund subsidy delays, inventory and market receivables. Disbursement of additional subsidy from the government will clear the subsidy receivable and further strengthen financial risk profile. However, timelines of disbursement of additional subsidy, fertiliser subsidy budget for fiscal 2022 and any larger-than-expected, debt-funded capex or acquisition will remain key monitorables.
Weaknesses
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 nutrient-based subsidy (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 70% of the operating income. 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.
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Liquidity: Strong Cash and cash equivalents were Rs 507 crore as on March 31, 2020. Average bank limit utilisation (including commercial papers) is about 31% during the 12 months through December 2019 (fund-based bank limit was around Rs 1,900 crore as of November 2020). Cash accrual was healthy at Rs 1,100 crore, as against nil maturing debt, in fiscal 2020. Annual cash accrual of more than Rs 1,000 crore with no term debt repayment over the medium term, further supports liquidity. |
Outlook Stable Coromandel will continue to generate steady cash flow over the medium term, backed by strong operating efficiency, lower raw material prices and higher offtake volume. The capital structure is also expected to remain healthy over this period, in the absence of any long-term debt. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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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 56.42% of Coromandel.
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 & marketing of complex fertilisers, speciality nutrients, organic fertilisers, and the retail business that provides agricultural inputs and services. The crop protection business includes manufacture of bio-based and chemical pesticides.
The company has the capacity to manufacture over 4.5 MT of fertilisers and pesticides and 1 MT of single super phosphate per annum.
During the first half of fiscal 2021, profit after tax (PAT) was Rs 840 crore on total income of Rs 7,843 crore as compared to Rs 566 crore and Rs 7,008 crore, respectively, during the corresponding period of the previous fiscal. |
Key Financial Indicators*
*As per CRISIL Ratings’ Analytical Adjustment |
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)
%%%Limits sanctioned USD 50 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit $$ Interchangeable with short term loan and non-fund based limits up to Rs 400 crore. $Fully interchangeable with letter of credit limits @@Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs 200 crore. #Limits sanctioned Rs 120 crores under corporate commercial card ^Sanctioned OD facilities against FD &Fully Interchangeable to Fund Based Facility/ Buyers Credit up to Rs 1100 crore and Interchangeable with BG limit up to Rs 400 crores and OD up to Rs 50 crores. ! Interchangeable to stand-by letter of credit (SBLC) up to Rs 500 crore. %Fully interchangeable with LC, SBLC *Interchangeable with SBLC up to Rs. 1000 crore |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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%%Limits sanctioned USD 70 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit
%%%Limits sanctioned USD 50 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit
$$ Interchangeable with short term loan and non-fund based limits up to Rs. 400 crore.
$Fully interchangeable with letter of credit limits
@@Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs. 200 crore.
#Limits sanctioned Rs. 120 crores under corporate commercial card
^Sanctioned OD facilities against FD
&Fully Interchangeable to Fund Based Facility/ Buyers Credit up to Rs.1100 Crs and Interchangeable with BG limit up to Rs. 400 crores and OD up to Rs 50 crores.
! Interchangeable to stand-by letter of credit (SBLC) up to Rs 500 crore.
%Fully interchangeable with LC, SBLC
@@@ Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs. 500 crore.
## Limits sanctioned Rs 80 crores under corporate commercial card
&& Fully interchangeable with fund based facility/buyers credit up to Rs. 800 crore and interchangeable with bank guarantee limit up to Rs. 400 crore and overdraft limits up to 10 crore
(1)Limits sanctioned USD 10 Million. Fully interchangeable with SBLC limits and short term loan limit up to Rs. 30 crore
(2) Interchangeable with SBLC up to Rs. 1000 crore
* Fully interchangeable with LC, SBLC and interchangeable with CC
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