| Coromandel International Limited | ||||||
| Ratings reaffirmed at 'CRISIL AA+/Positive/CRISIL A1+'; rated amount enhanced for Bank Debt | ||||||
| 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+/Positive/CRISIL A1+' ratings on the bank facilities and commercial paper programme of Coromandel International Limited (Coromandel).
The ratings continue to reflect Coromandel’s robust market position in India’s phosphatic-fertilizer market and its strong operating efficiency. Benefited by the backward-integration facilities established over the years, which provides it a competitive advantage against imports, the company has been able to improve its market position to 17.90% in fiscal 2022, from 15.30% previously.
Coromandel has been able to sustain its operating performance especially in the second half of fiscal 2022, despite the industry witnessing a pressure of the rise in raw material prices. To insulate its operating performance from volatility in raw material prices, the company has over the years ensured that a major share of phosphoric acid requirement is produced in-house. The company has also shown an improvement in the scale of operations of its agrochemicals business.
Additional subsidies announced by the government over the past two fiscals, has enabled the company to attain a debt free position. It has moderate annual capital expenditure (capex) plans of Rs 700-900 crore, to further strengthen the operating efficiency of the fertilizer segment, as well as growth in the agro-chemicals segment. The annual cash accruals of around Rs 1300 - 1500 crore to be adequate to meet the annual capex and incremental working capital requirements, if any.
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, 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. Overall, the company is expected to remain net debt-free over the medium term. Any higher-than-expected debt-funded capex or acquisition or any material increase in subsidy receivables will remain key monitorables.
These strengths are however partially offset by exposure to risks related to regulated nature of the fertilizer industry in India and susceptibility of operating performance to volatility in raw material prices. |
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 Robust position in India’s phosphatic-fertilizer market The company is the second-largest player in the phosphatic-fertilizer industry in India, wherein its market share has improved to 17.90% in fiscal 2022, from 15.30% previously. 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, specialty nutrients (secondary and micro-nutrients [sulphur, zinc, calcium and boron], water-soluble fertilizers and compost), and bio products. During April 2018, it also acquired the bio-pesticides business of E.I.D. Parry (India) Ltd (‘CRISIL AA-/Positive/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 a strong recall amongst customers and commands a premium in its key markets. It also has its own retail outlets through which it sells fertilizers, crop protection chemicals, specialty nutrient products, seeds, sprayers, veterinary products, amongst others. It has more than 750 retail stores in India.
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. Its operating efficiency is also supported by its ability to adjust the product mix (between di-ammonium phosphate and other complex fertilizers).
Coromandel has been able to sustain its operating performance especially in the second half of fiscal 2022, despite the industry witnessing a pressure of the rise in raw material prices. This is benefited by the backward integration facilities, operational efficiencies and raw material sourcing tie-ups undertaken over the past several years. While volume sales de-grew by 3% on a y-o-y basis to 47.13 lakh tonnes in fiscal 2022, it was mainly on account of a decline in traded volume sales. The earnings before interest and taxes (EBIT) from the fertiliser business improved to Rs 1773 crore in fiscal 2022, as compared to Rs 1654 crore earned in the previous fiscal.
There has also been an improvement in the scale of operations of its agrochemicals business, with EBIT improving to Rs 368 crore in fiscal 2022, from Rs 347 crore in the previous fiscal. Over the medium term, an increasing share of non-subsidy-based products, such as specialty nutrients, crop protection and retail business, will reduce the vulnerability of profits to changes in the government’s subsidy policies.
Healthy financial risk profile Coromandel maintained a debt free position as on March 31, 2022. Over the medium term, while the company has moderate annual capex plans of Rs 700-900 crore, the cash accruals earned of around Rs 1300 - 1500 crore should be adequate to fund these capex requirements as well as its incremental working capital requirements, if any. Accordingly, the company is expected to remain net debt-free over the medium term. Any higher-than-expected debt-funded capex or acquisitions that could materially alter its capital structure, would remain a key monitorable.
Weaknesses Exposure to regulated nature of the fertilizer industry and volatility in raw material prices The fertilizer industry is strategic, but highly controlled, with fertilizer subsidy being an important component of profitability. The phosphatic-fertilizer 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 fertilizers 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 fertilizer players (including Coromandel) to raw material price volatility under the NBS regime continues to be key rating sensitivity factors.
Fertilizer companies are also exposed to subsidy payments from the government, which may get delayed leading to reliance on short-term working capital borrowings. |
Liquidity: Strong Liquidity is driven by cash and cash equivalents of Rs 3667 crore and unutilized fund-based bank limits of Rs 2000 crore as on March 31, 2022. Annual cash accruals of around Rs 1,300 - 1,500 crore with no term debt repayment and moderate annual capex of Rs 700 - 900 crore over the medium term, further supports liquidity. |
Outlook Positive Coromandel’s business risk profile to further strengthen, with continued focus on improving operating efficiencies and diversification of operations into the agrochemicals segment. Continued and timely support from the Government to remain key to maintain the company’s strong financial risk profile. |
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 56.37% 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 and marketing of phosphatic fertilizers, specialty nutrients and organic fertilizers. The crop protection business includes manufacture of bio-based and chemical pesticides.
The company has the capacity to manufacture over 3.4 metric tonne (MT) of fertilizers and pesticides and 1 MT of single super phosphate per annum. Besides this, the company also manufactures biopesticides and agrochemical technicals and formulations. |
Key Financial Indicators
As per CRISIL Ratings’ Analytical Adjustment; *Based on Provisional financials |
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)
^Sanctioned OD facilities against FD #Limits sanctioned Rs 20 crores under corporate commercial card &Fully Interchangeable to SBLC up to Rs 1400 crore and interchangeable with BG limits up to Rs 400 crores and OD up to Rs 50 crores. %%Limits sanctioned USD 70 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit ! Interchangeable to stand-by letter of credit (SBLC) up to Rs 1450 crore. $Fully interchangeable with letter of credit limits %Fully interchangeable with LC, SBLC @@Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs 200 crore. *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 Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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This Annexure has been updated on 05-Jul-22 in line with the lender-wise facility details as on 08-Sep-21 received from the rated entity.
^Sanctioned OD facilities against FD
#Limits sanctioned Rs 20 crores under corporate commercial card
&Fully Interchangeable to SBLC up to Rs 1400 crore and interchangeable with BG limits up to Rs 400 crores and OD up to Rs 50 crores.
%%Limits sanctioned USD 70 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit
! Interchangeable to stand-by letter of credit (SBLC) up to Rs 1450 crore.
$Fully interchangeable with letter of credit limits
%Fully interchangeable with LC, SBLC
@@Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs 200 crore.
*Interchangeable with SBLC up to Rs. 1000 crore
Criteria Details
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