| Coromandel International Limited | ||||||
| Rated amount enhanced | ||||||
| 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 loan facilities and commercial paper of Coromandel International Ltd (Coromandel). |
| Analytical Approach |
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For arriving at the ratings, CRISIL has combined the business and financial risk profiles of Coromandel and its associate and subsidiary companies, considering the operational, managerial, financial linkages between them. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Robust position in India's phosphatic fertiliser market Coromandel 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 its entrenched and leading position in Andhra Pradesh and Telangana - India's largest complex-fertiliser market ' and its 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), in its portfolio. During April 2018, Coromandel also acquired 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 its product profile under crop protection business. In fiscal 2018, Coromandel's non-subsidy business had a revenue share of 15% and earnings before interest, tax, depreciation and amortization (EBITDA) share of 32%. Company's brand 'Gromor' has strong recall among customers and commands premium in its key markets. It also has its own retail outlets, 'Mana Gromor Centers' through which it sells fertilisers, crop protection chemicals, speciality nutrient products, seeds, sprayers, veterinary products, etc. It has around 800 stores located in Andhra Pradesh, Telangana, Karnataka and Maharashtra. * Strong operating efficiencies Operations derive benefits from economies of scale, assured raw material procurement due to established relationship with suppliers, captive production of phosphoric acid, superior plant infrastructure, and low handling and transportation costs. During the year, Coromandel has improved its share of unique grades and is expanding its phosphoric acid capacity. This was despite below normal monsoon, rupee depreciation and increasing raw material prices. 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 government's subsidy policies. EBITDA margins were also healthy during fiscal 2018 at 11.2% as against 9.6% during the previous fiscal. EBITDA margins have remained at around 11% even for the nine months ended December 31, 2018 and are expected to remain healthy over the medium term as well. * Strong financial risk profile: Financial risk profile is underpinned by comfortable debt protection metrics and healthy capital structure. Coromandel's interest cover and net cash accrual to total debt (NCATD) ratios were at 6.9 times and 0.18 time, respectively, in fiscal 2018, as against 4.4 times and 0.20 time, respectively, in fiscal 2017. Absence of any long term debt and any capital expenditure or acquisition being funded through internal accruals has kept the gearing below 1 time at 0.87 time and 0.77 time respectively in fiscals 2018 and 2017. Further, all the borrowings is in form of working capital, largely to fund subsidy delays, inventory and market receivables. Gearing is expected to remain comfortable below 1 time going forward, in the absence of any long term debt and despite any higher working capital requirements to fund government subsidy receivables. Any larger than expected debt-funded capital expenditure or acquisition or higher working capital borrowings, adversely impacting financial risk profile will remain a key monitorable. Weaknesses * Regulated nature of 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 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 material, such as rock phosphate and phosphoric acid. The cost of raw material accounts for about 70% of the players' 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 a key rating sensitivity factor. Additionally, any delay in disbursement of subsidy under the direct benefit transfer scheme may lead to significant reliance on short-term working capital borrowing, leading to high interest costs, and this remains a key rating sensitivity factor. |
| Liquidity |
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Liquidity is comfortable with cash and cash equivalents of Rs 959 crore as on March 31, 2018. Bank limits of about Rs. 3000 crore was utilised at about 70% over the 12 months through December 2018. Liquidity is also supported by healthy cash accruals of Rs. 480 crore, as against nil maturing debt in fiscal 2018. Expectation of healthy accruals of about Rs. 500 cr. on annual basis with no term debt repayment over the medium term, adds to the overall liquidity. |
| Outlook: Stable |
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CRISIL believes Coromandel will generate steady cash flows 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. |
| About the Company |
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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 60.74% of Coromandel. In July 2007, the company amalgamated Godavari Fertilisers & Chemicals Ltd with itself; the consolidated entity manufactures fertilisers, pesticides, and specialty nutrient products. It has phosphatic-fertiliser plants at Visakhapatnam and Kakinada, both in Andhra Pradesh, and at Ennore and Ranipet, both in Tamil Nadu. The total installed capacity of the consolidated entity is 3.6 million tonne per annum (mtpa) of complex fertiliser. The pesticide plants are at Ranipet in Tamil Nadu, Jammu, and at Ankleshwar, Sarigam, and Dahej in Gujarat. The company is also present in the retail business and currently operates 800 retail stores. |
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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. 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$$ Interchangeable with short term loan and non-fund based limits up to Rs. 400 crore. & Fully interchangeable with letter of credit limits %% Limits sanctioned USD 70 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit (1) Fully interchangeable to fund based facility/buyers credit upto Rs. 800 crore and interchangeable with bank guarantee limit up to Rs. 400 crore (2) Fully interchangeable to fund based facility and buyers credit (3) Interchangeable to stand-by letter of credit (SBLC) upto Rs 500 crore. (4) Limits sanctioned USD 10 Million. Fully interchangeable with SBLC limits and short term loan limit up to Rs. 30 crore (5) Interchangeable to SBLC upto Rs. 1000 crore (6) Interchangeable to overdraft (OD) upto Rs 5 crore | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annexure - List of entities Consolidated - Fully consolidated entities:
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
@@ Fully interchangeable with short term loan and non-letter of credit reimbursement finance (NLRF) limit up to Rs. 500 crore. $$ Interchangeable with short term loan and non-fund based limits up to Rs. 400 crore. & Fully interchangeable with letter of credit limits %% Limits sanctioned USD 70 Million. Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit (1) Fully interchangeable to fund based facility/buyers credit upto Rs. 800 crore and interchangeable with bank guarantee limit up to Rs. 400 crore (2) Fully interchangeable to fund based facility and buyers credit (3) Interchangeable to stand-by letter of credit (SBLC) upto Rs 500 crore. (4) Limits sanctioned USD 10 Million. Fully interchangeable with SBLC limits and short term loan limit up to Rs. 30 crore (5) Interchangeable to SBLC upto Rs. 1000 crore (6) Interchangeable to overdraft (OD) upto Rs 5 crore @ Fully interchangeable with short term loan and one way interchangeable to non-fund based limits & buyers credit $ Fully interchangeable with short term loan, non-fund based and buyers credit limits # Fully interchangeable with letter of credit & buyers credit limits % Fully interchangeable with letter of credit, bank guarantee, short term loan and buyers credit ^ Fully interchangeable with fund based limits and letter of credit & bank guarantee ^^ Fully interchangeable with fund based limits and buyers credit ## Fully interchangeable with buyers credit limit * Interchangeable to fund based facility upto Rs. 100 crore ** Interchangeable to fund based facility upto Rs. 1 crore | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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