| Coromandel International Limited | ||||||
| Rating Outlook revised to 'Positive'; ratings reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has revised its outlook on the long-term bank facilities of Coromandel International Limited (Coromandel) to 'Positive' from 'Stable' while reaffirming the rating at 'CRISIL AA+’. The short term rating and commercial paper programme has been reaffirmed at 'CRISIL A1+'.
The revision in outlook factors in expected stability in the business risk profile with sustenance of operating efficiencies and the company’s market position in the fertilizer segment, along with improvement in the scale of operations of the agro-chemicals segment. It also factors in sustenance of improved financial risk profile (on account of liquidation of subsidy arrears) with expected steady working capital position and the absence of any major, debt-funded capital expenditure (capex) over the medium term.
The operating performance of the company has improved significantly over the past few years, driven primarily by various efficiency improvement and debottlenecking projects and the ability to pass on variations in the raw material prices to consumers in the fertilizer segment. The capacity utilization of the fertilizer plants have improved considerably over the last few years, leading to higher operating profit in the segment. Moreover, the company has also shown significant improvement in the scale of operations of its agrochemicals business. Overall, the earnings before interest and taxes (EBIT) for the fertilizer and agro-chemicals segment has increased by compound annual growth rate (CAGR) of 23% and 16%, respectively, over the five years through fiscal 2021. CRISIL Ratings believes Coromandel will maintain its market position and strong operating efficiencies in the fertilizer segment, while improving the scale of operations of the agro-chemicals division over the medium term.
The financial risk profile has improved recently, driven by reduction in the working capital borrowings due to disbursement of additional subsidy by the government during fiscal 2021. Moreover, the government has also provided for an additional subsidy of Rs 14,775 crore to account for the increase in the nutrient based subsidy (NBS) rates to limit the price rise in phosphatic fertilizers. This is expected to keep the working capital position steady and not let any material built-up of the subsidy receivables in fiscal 2022. Moreover, the company has moderate annual capex of Rs 500 – 700 crore to strengthen the operating efficiency of the fertilizer segment, as well as growth in the agro-chemicals segment. The annual cash accrual of around Rs 1,200 crore is expected to be adequate to meet the annual capex and incremental working capital requirement, if any. 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.
The ratings continue to reflect Coromandel’s robust market position in India’s phosphatic-fertilizer market and strong operating efficiency. The ratings also factor in robust financial risk profile, driven by strong liquidity. These strengths are partially offset by exposure to risks related to regulated nature of the fertilizer industry in India and 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:
The company is the second-largest player in the phosphatic-fertilizer industry in India with a market share of 15.3% in fiscal 2021. 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 agro-chemical products, including crop protection, specialty nutrients (secondary and micro-nutrients [sulphur, zinc, calcium and boron], water-soluble fertilizers and compost), and bio-chemical 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 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 fertilizers, crop protection chemicals, specialty nutrient products, seeds, sprayers, veterinary products, among others. It has more than 750 retail stores in India.
Operations benefit from economies of scale, assured raw material procurement due to established relationships 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. Operating efficiency is also supported by the company’s ability to adjust the product mix (between di-ammonium phosphate and other complex fertilizers).
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. Operating profit before depreciation, interest and tax (OPBDIT) margin remained healthy at 14.4% during fiscal 2021 (13.2% during the previous fiscal) and is expected to remain healthy over the medium term.
Coromandel has negligible debt and strong debt protection metrics. Adjusted interest coverage ratio remained 19.9 times during fiscal 2021 (7.5 times during the previous fiscal). The company has moderate capex of Rs 500 – 700 crore for some debottlenecking projects for its fertilizer units and growth projects for the agro-chemicals segment over the medium term. With high cash accrual and expected adequate subsidy budget, the need for working capital borrowing is expected to be low and therefore the company is expected to remain net debt-free over the medium term.
Weakness:
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 70% 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 borrowing. |
Liquidity: Strong Liquidity is driven by cash and cash equivalent of Rs 2,200 crore and unutilised fund-based bank limit of Rs 1,984 crore as on March 31, 2021. Annual cash accrual of around Rs 1,200 crore with no term debt repayment and moderate annual capex of Rs 500 – 700 crore over the medium term, further supports liquidity. |
Outlook: Positive Coromandel’s business risk profile shall strengthen to generate steady cash flow, driven by strong operating efficiency and market position, resulting in further strengthening of the 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 56.42% 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 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 fiscal 2020-21 results declared by the company on April 29, 2021; |
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)
%%Limits sanctioned USD 50 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit $$ Interchangeable with short term loan and non-fund based limits up to Rs. 400 crore. $Fully interchangeable with letter of credit limits @@Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs. 200 crore. #Limits sanctioned Rs. 120 crores under corporate commercial card ^Sanctioned OD facilities against FD &Fully Interchangeable to Fund Based Facility/ Buyers Credit up to Rs.1100 Crs and Interchangeable with BG limit up to Rs. 400 crores and OD up to Rs 50 crores. ! Interchangeable to stand-by letter of credit (SBLC) up to Rs 500 crore. %Fully interchangeable with LC, SBLC *Interchangeable with SBLC up to Rs. 1000 crore |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Name of Lender | Amount (Rs.Crore) | Rating |
| Cash Credit^ | Andhra Pradesh Grameena Vikas Bank | 0.01 | CRISIL AA+/Positive |
| Cash Credit^ | Andhra Pragathi Grameena Bank | 0.01 | CRISIL AA+/Positive |
| Cash Credit# | Axis Bank Limited | 120 | CRISIL AA+/Positive |
| Cash Credit^ | Bank of Maharashtra | 0.01 | CRISIL AA+/Positive |
| Cash Credit^ | Canara Bank | 0.04 | CRISIL AA+/Positive |
| Cash Credit^ | Central Bank Of India | 0.01 | CRISIL AA+/Positive |
| Cash Credit%% | Citibank N. A. | 59.25 | CRISIL AA+/Positive |
| Cash Credit$$ | HDFC Bank Limited | 450 | CRISIL AA+/Positive |
| Cash Credit$ | ICICI Bank Limited | 50 | CRISIL AA+/Positive |
| Cash Credit^ | Indian Bank | 0.01 | CRISIL AA+/Positive |
| Cash Credit^ | Indian Overseas Bank | 0.01 | CRISIL AA+/Positive |
| Cash Credit^ | Punjab National Bank | 0.02 | CRISIL AA+/Positive |
| Cash Credit@@ | State Bank of India | 200 | CRISIL AA+/Positive |
| Cash Credit^ | Union Bank of India | 0.14 | CRISIL AA+/Positive |
| Letter of credit & Bank Guarantee& | Axis Bank Limited | 1100 | CRISIL AA+/Positive |
| Letter of credit & Bank Guarantee | Bank of Baroda | 100 | CRISIL A1+ |
| Letter of credit & Bank Guarantee | Citibank N. A. | 251.8 | CRISIL A1+ |
| Letter of credit & Bank Guarantee! | HDFC Bank Limited | 700 | CRISIL A1+ |
| Letter of credit & Bank Guarantee! | HDFC Bank Limited | 300 | CRISIL A1+ |
| Letter of credit & Bank Guarantee | ICICI Bank Limited | 400 | CRISIL A1+ |
| Letter of credit & Bank Guarantee | ICICI Bank Limited | 250 | CRISIL A1+ |
| Letter of credit & Bank Guarantee | Kotak Mahindra Bank Limited | 380 | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | State Bank of India | 1100 | CRISIL A1+ |
| Letter of credit & Bank Guarantee* | State Bank of India | 400 | CRISIL A1+ |
| Proposed Fund-Based Bank Limits | Not Applicable | 18.69 | CRISIL AA+/Positive |
| Proposed Non Fund based limits | Not Applicable | 100 | CRISIL A1+ |
| Short Term Loan% | Kotak Mahindra Bank Limited | 20 | CRISIL A1+ |
| Short Term Loan | MUFG Bank Limited | 500 | CRISIL A1+ |
| Short Term Loan | Sumitomo Mitsui Banking Corporation | 500 | CRISIL A1+ |
This Annexure has been updated on 21-Sep-2021 in line with the lender-wise facility details as on 08-Sep-2021 received from the rated entity.
%%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
*Interchangeable with SBLC up to Rs. 1000 croreCriteria Details
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