| Kribhco Fertilizers Limited | ||||||||
| 'CRISIL AA-/Positive' assigned to Non Convertible Debentures | ||||||||
| Rating Action | ||||||||
| ||||||||
| ||||||||
| & Of this, Rs 5 crore non-convertible debentures (NCDs) are yet to be issued; Guaranteed by Krishak Bharati Cooperative Limited (KRIBHCO)^ Guaranteed by KRIBHCO% Guaranteed by KRIBHCO$ Yet to be issued; Guaranteed by KRIBHCO | ||||||||
| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||
| 1 crore = 10 million | ||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA-/Positive’ rating to the Rs 65 crore non-convertible debentures of KRIBHCO Fertilizers Ltd (KFL), and has reaffirmed its ‘CRISIL AA-/Positive/CRISIL A1+’ ratings on the bank facilities and non-convertible debentures.
Continuation of the positive outlook reflects the expectation that the operating performance of the company may improve driven by reduction of energy consumption owing to completion of energy-saving projects in May 2021 and likely completion of the freight reduction project by fiscal 2022 along with sustenance of working capital cycle. This will lower the operating cost as well as improve the cash flow of the company.
Although the operating performance of the company was subdued during April to October 2021 owing to lower production and sales mainly because of plant shutdown of 45 days for implementation of the energy-saving project, energy consumption reduced significantly to 5.3 giga calorie per tonne (Gcal/tonne) from 5.43 Gcal/tonne during the previous fiscal. The performance will improve over the medium term with expected sustenance of lower energy consumption and reduction in the freight cost post implementation of the railway siding project by the end of fiscal 2022. However, any further delay in execution of the project will be a key monitorable.
The ratings also factor in sustenance of the financial risk profile, driven by reduction in working capital borrowing in fiscal 2021, mainly on account of additional subsidy (over and above the budgeted subsidy for fiscal 2021) provided by the central government under the Aatma Nirbhar Bharat Package 3.0. Subsequently, receivables fell to 70 days as on March 31, 2021, from 235 days a year earlier. While receivables had increased to 126 days as of October 2021 partly due to lower revenue and subsidy collection, any further increase in receivables and its subsequent impact on the working capital borrowing will remain a key rating sensitivity factor.
The ratings continue to reflect the strong managerial and financial support received by the company from its parent, Krishak Bharati Cooperative Ltd (KRIBHCO), and its well-established market position in the urea industry. These strengths are partially offset by average financial risk profile and exposure to regulatory risks in the fertiliser industry. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support received by KFL from KRIBHCO. |
Key Rating Drivers & Detailed Description Strengths:
The managerial and financial support from KRIBHCO is central to CRISIL Ratings’ assessment of the credit risk profile of KFL. Being a 100% shareholder in KFL, KRIBHCO has provided corporate guarantees for the latter’s bank facilities and non-convertible debentures. KFL has a marketing agreement with KRIBHCO for selling its total production of urea and surplus ammonia. The urea is sold under the KRIBHCO urea brand, which has market presence of 25 years. Moreover, KFL has common directors with KRIBHCO.
KFL, along with its parent, is the second largest player in the urea sector in India, with a prominent presence in the high urea-consuming states of north India. These entities together had 13.8% share in the domestic urea production in fiscal 2021. The company benefits from the large distribution network of KRIBHCO, comprising 9,472 cooperative societies, 2,300 direct dealers and 4,000 retailers. Additionally, the favourable location of the plant of KFL, close to its markets, lends a significant competitive edge.
Weaknesses:
Gearing was high at 2.2 times as on March 31, 2021, though improved from 5.2 times a year earlier, mainly owing to additional subsidy from the government. It had increased to 2.6 times as on October 31, 2021, partly because of higher working capital borrowing and due to term debt obligation on account of the ongoing capital expenditure (capex). Gearing is expected to remain above 2 times in fiscals 2022 and 2023. Adjusted interest coverage ratio was 1.9 times in fiscal 2021 (1.7 times in the previous fiscal). Although, adjusted interest coverage ratio has increased to 2.46 times as of October 2021 due to lower interest outgo, it remains modest and is expected below 3 times in fiscals 2022 and 2023. Moreover, KFL has moderate cash accruals and has material repayment obligations during fiscal 2024.
On account of the government’s thrust on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Hence, players are vulnerable to regulatory changes made by the government. Of late, the government has focused on reducing subsidy without increasing prices by urging companies to adopt efficient methods of urea production. In line with these measures, the government had tightened energy consumption norms in the past, impacting profits of urea players unless they improved energy efficiency. The impact of this norm is partially offset by the agreed additional fixed cost of Rs 350 per tonne by the government for all urea manufacturers. Fertiliser players are also susceptible to delays in subsidies from the government, leading to higher reliance on working capital loans. The government cleared the subsidy arrears of the industry through additional subsidy under Aatma Nirbhar Bharat Package 3.0 in fiscal 2021. However, recent rise in pooled gas prices will increase subsidy bills. Shortfall or delay in the disbursement of subsidy on account of under-budgeting and changes in the regulatory scenario will remain key monitorables. |
Liquidity: Strong The company had unutilised bank lines of around Rs 2,500 crore as of October 2021 (fund-based bank limit of Rs 2,995 crore as of October 2021). Annual cash accrual and unutilised bank lines should be adequate for meeting debt obligation, capex and working capital requirement in fiscals 2022 and 2023. Moreover, financial flexibility is backed by the strong promoter support received from KRIBHCO. The debt of KFL is backed by a corporate guarantee extended by KRIBHCO. This enables KFL to refinance its debt obligation at competitive rates, dependence on which is likely to continue over the medium term. |
Outlook: Positive The business risk profile of KFL will improve over the medium term after completion of the capex. The company will maintain its strong market position in the urea industry. |
Rating Sensitivity factors Upward factors:
Downward factors:
|
About the Company KFL was incorporated in December 2005 as a special-purpose vehicle under a joint venture agreement between KRIBHCO and Shyam Basic Infrastructure Projects Pvt Ltd to acquire the Shahjahanpur fertiliser complex of Oswal Chemicals and Fertilisers Ltd. The fertiliser plant in Shahjahanpur has capacity to produce 0.86 MTPA of urea and 0.5 MTPA of ammonia. On April 21, 2016, KRIBHCO acquired the remaining 7.5% stake in KFL and became a 100% shareholder. The name of the company was changed from KRIBHCO Shyam Fertilizers Ltd to KFL in June 2017. |
About the guarantor KRIBHCO was incorporated in 1980 by the government of India. It manufactures fertilisers (including biofertilisers) and processes seeds. KRIBHCO completed the debottlenecking of its plant in Hazira, Gujarat, in 2012, and its urea manufacturing capacity has increased by 26% to 2.19 MTPA from 1.73 MTPA. Its first biofertiliser plant was commissioned in late 1990s; it now has capacity to manufacture 550 TPA of biofertilisers. |
Key Financial Indicators*
* As per analytical adjustments made by CRISIL Ratings |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
$ Yet to be issued ~ Guaranteed by KRIBHCO @ Sub-limit for letter of credit / standby letter of credit / line of credit / letter of undertaking / bank guarantee / commercial paper lien & Sub-limits are letter of credit of Rs 20 crore and working capital demand loan of Rs 20 crore && Fully interchangeable with letter of credit $ Includes sub-limit for financial bank guarantee (FBG)-1, FBG-2, performance bank guarantee, import letter of credit, inland Letter of credit, standby letter of credit-1, standby letter of credit-2, buyer’s credit ^ Cash credit, letter of credit/standby letter of credit/buyer’s credit for bank guarantee with sub-limit for loan equivalent risk * Sub-limit of letter of credit (inland/foreign) > Sub-limit of WCL, standby letter of credit, overdraft, import letter of credit, inland letter of credit, bank guarantee, buyer’s credit, FBG for buyer's credit, credit equivalent forward contract limit and import letter of credit for capital goods and foreign currency demand loan + Sub-limit of foreign currency demand loan ** With sub-limit of letter of credit # with sub-limit of short-term loan, working capital demand loan/foreign currency demand loan, letter of credit, standby letter of credit and loan equivalent risk ## With sub-limit of cash credit *** With sub-limit of short term loan-FC and MTM ++ With sub-limit of short-term loan, overdraft, financing of bills/invoices, letter of credit, forward exchange/options +++ With sub-limit of buyer’s credit &&& Fully interchangeable with working capital loan |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Criteria Details
|