Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank facilities of Indian Farmers Fertiliser Cooperative Limited (IFFCO) and has reaffirmed its ‘Crisil A1+’ rating on the commercial paper programme of the company.

 

The ratings continue to reflect the strong market leadership of IFFCO, healthy operating efficiency of its fertiliser plants and comfortable financial risk profile. These strengths are partially offset by exposure to regulatory risks and susceptibility to volatility in raw material prices.

 

Revenue stood at Rs 31,206 crore and earnings before interest, tax, depreciation and amortisation at Rs 1,707 crore for the nine months through December 2024, compared with Rs 30,263 crore and Rs 1,604 crore, respectively, in the corresponding period of the previous fiscal. The company’s urea capacity continues to operate at over 100% utilisation and all its urea plants will fall within prescribed energy norms, leading to energy-efficiency savings. Profitability of the urea segment (contributed to ~28% of operating profitability in fiscal 2024) remains immune to rise in feedstock (natural gas) prices owing to subsidy receipts from the government. However, gas efficiency-related savings, adding to the profitability, are directly linked to gas prices and energy-efficiency norms. Hence, any change in regulatory policy, leading to tightening of energy norms from fiscal 2026 onwards, will remain monitorable.

 

Profitability of the complex fertiliser segment (contributed to over 60% in fiscal 2024) will remain comfortable, backed by alignment of Nutrient Based Subsidy (NBS) rates with international raw material prices. While profitability for diammonium phosphate was weak in fiscal 2025, upward revision announced in the first half of fiscal 2026 should aid profitability. Further, strong dividends from overseas profitable ventures, which are into production of urea and complex fertilisers, have supported cash flow. Ramp up in the nascent nano fertilisers segment, which have higher profitability than conventional fertilisers, and its adoption by farmers will remain monitorable.

 

The government has extended financial support to the fertilisers sector through additional subsidies in the past two fiscals. Announced subsidy of around Rs 1.7 lakh crore in fiscal 2026 will be sufficient to meet the requirement. This, combined with healthy cash accrual and surplus liquidity should be sufficient to cover working capital requirement. As timely disbursement of the subsidy is crucial for the company to maintain its robust financial risk profile, any change in policy support or sustained delay in payouts will remain monitorable.

 

The cooperative does not have significant expansion plans in the near term and the maintenance and replacement capital expenditure in existing plants will be funded through internal cash accrual. Overall, adjusted debt to adjusted networth ratio and net debt to operating profit before depreciation, interest and tax (OPBDIT) ratio are expected below 0.6 time and 2 times, respectively, over the medium term.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of IFFCO.

 

Crisil Ratings has also used the capital allocation method to factor in capital required by the financial entities of the cooperative, viz IFFCO Tokio General Insurance Company Ltd (subsidiary) and IFFCO Kisan Finance Ltd (associate), for maintaining their credit risk profiles.

Key Rating Drivers & Detailed Description

Strengths:

Market leadership in the fertiliser industry and diverse income streams

IFFCO dominates the domestic urea and phosphate fertilisers industry, with market share of 15-20% in both. Over the past five decades, IFFCO established wide clientele and strong brand equity. Its vast distribution network comprises 35,617 cooperative societies, which aid penetration into remote areas. The business risk profile is supported by diverse income streams with presence across urea, phosphate fertilisers, trading activities and investments in profitable overseas ventures. This diversity has helped IFFCO sustain its profitability.

 

Healthy operating efficiency

Operating efficiency has been high, driven by plants functioning at more than 100% capacity, energy consumption below the prescribed norms and additional fixed cost reimbursement provided by the government for urea players. IFFCO receives Rs 350 per tonne for urea manufactured till the reassessed capacity and an additional Rs 150 per tonne for its Phulpur I and Aonla I units in Uttar Pradesh and Kalol unit in Gujarat, aiding profitability.

 

In the phosphatic fertilisers segment, the cooperative commands competitive pricing in raw material procurement because of economies of scale and strong raw material linkages. Subsidiaries/joint ventures, Oman India Fertiliser Company SAOC, Industries Chimiques du Senegal and Jordan India Fertilizer Company, help the entity avail benefits of backward integration by ensuring consistent and timely raw material supply and diversity into related businesses. Furthermore, while the Kandla plant (in Gujarat) remains import-dependent, the Paradeep plant (in Odisha) is backward integrated into producing both, sulfuric acid and phosphoric acid.

 

The cooperative sold 6.78 million metric tonnes (MMT) of urea (including imported), 4.23 MMT of complex fertilisers (including imported) and 2.45 crore bottles of nano urea and nano DAP combined in fiscal 2024. Volume sales remained comfortable in fiscal 2025 as well.

 

Profitability of the urea division remains immune to rise in feedstock (natural gas) prices as the cooperative gets subsidy from the government. Changes in regulatory policies, such as tightening energy-efficiency norms, impacting profitability will remain a key monitorable. Operating profitability for the complex fertiliser segment will remain comfortable on the adequate NBS rates, in line with international raw material prices and ability to take price hikes. Upward revision has been announced for the first half of fiscal 2026.

 

Comfortable financial risk profile

Adjusted gearing was healthy at 0.36 time as on March 31, 2024, compared with 0.61 time a year ago. Debt is primarily for the working capital cycle, which is backed by subsidy receivables from the government of India. The cooperative does not have plans to incur significant expansion capex in the near term. The net debt to OPBDIT ratio improved to 1.2 times as on March 31, 2024, from 1.6 times a year ago, and is expected to remain comfortable at below 2 times in the near term, with healthy cash accrual and no significant debt-funded capex.

 

Weaknesses:

Susceptibility to regulatory changes and volatility in raw material prices

Given the government’s thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Hence, players are susceptible to regulatory changes. The government has been focusing on reducing subsidies without increasing prices by urging companies to adopt efficient methods for urea production. In line with these measures, the government has tightened energy consumption norms, impacting profits of urea players unless they improve energy efficiency. The impact of this norm is mitigated by the agreed additional fixed cost of Rs 350 per tonne allowed for all urea manufacturers.

 

The phosphate fertiliser segment was brought under the NBS regime from April 1, 2010. Under this scheme, the government fixes the subsidy payable on nutrients for the entire fiscal (with an option to review every six months) while retail prices are market-driven. Manufacturers of phosphate fertilisers are dependent on imports for their key raw materials, such as rock phosphate and phosphoric acid. Cost of raw materials accounts for around 75% of the operating income. The regulated nature of the industry and susceptibility of complex fertiliser players to raw material price volatility under the NBS regime continue to be key rating sensitivity factors.

 

Fertiliser companies are also susceptible to delays in subsidy payments from the government, leading to high reliance on working capital debt. Deferment in the disbursement of subsidy on account of under-budgeting and change in the regulatory scenario will remain key rating sensitivity factors.

Liquidity: Strong

IFFCO had cash and equivalent of around Rs 5,860 crore (including liquid bonds) as on December 31, 2024. Average fund-based bank limit utilisation (including commercial papers and short-term loans) was minimal during the 12 months through December 2024. Existing cash and liquid investments, unutilised bank lines and healthy annual cash accrual of more than Rs 2,000 crore should be adequate for covering debt obligation and capex over the medium term. Investments in highly profitable ventures such as IFFCO Tokio General Insurance Co Ltd, dividend income from Oman India Fertiliser Company SAOC, minimal long-term debt and ability to raise short-term working capital debt at competitive rates enhances IFFCO’s financial flexibility.

Outlook: Stable

IFFCO will continue to benefit from its market leadership in urea and phosphate fertilisers, healthy operating efficiency and adequate subsidy allocation by the government.

Rating Sensitivity Factors

Upward Factors

• Significant decline in debt, with reduction in subsidy receivables or monetisation of stake in joint ventures or subsidiaries, leading to net cash* positive position on a sustained basis
• Improvement in profitability with cost-reduction measures or significant ramp-up in new segments such as nano fertilisers, leading to higher return on capital employed
• Substantial positive impact of regulatory or policy changes by the government

 

*Net cash = cash and equivalent - total debt

 

Downward Factors

• Additional large, debt-funded capex or acquisition, or increase in debt owing to stretched working capital cycle, leading to net debt to OPBDIT ratio above 2 times
• Adverse impact of regulatory or policy changes by the government

About the Company

IFFCO, India’s largest fertiliser manufacturer, was set up in 1967 as a cooperative. It was set up to facilitate easy access to fertilisers for cooperative societies at government-prescribed rates.

 

IFFCO has consistently held the top position as the world's number one cooperative, according to the WCM report. 

Key Financial Indicators*

Particulars	Unit	2024	2023
Operating income	Rs crore	40,394	60,444
Profit after tax (PAT)	Rs crore	2,483	3,100
PAT margin	%	6.15	5.13
Adjusted debt/adjusted networth	Times	0.36	0.61
Adjusted interest coverage	Times	9.8	7.63

*As per Crisil Ratings’ analytical adjustment

Any other information: Not Applicable