| Kribhco Fertilizers Limited | ||||||||
| Ratings Reaffirmed | ||||||||
| Rating Action | ||||||||
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| ^ Guaranteed by Krishak Bharati Cooperative Limited (KRIBHCO)$ Guaranteed by Krishak Bharati Cooperative Limited (KRIBHCO)% Guaranteed by Krishak Bharati Cooperative Limited (KRIBHCO)& Guaranteed by Krishak Bharati Cooperative Limited (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 reaffirmed its 'CRISIL AA/Stable/CRISIL A1+’ ratings on the bank facilities of and non convertible debentures of Kribhco Fertilizers Limited (KFL). Also, CRISIL Ratings has withdrawn its rating on NCDs worth Rs 320 crore as these have been redeemed as per confirmation from the debenture trustee. The withdrawal is in line with the CRISIL Ratings withdrawal policy.
Revenue jumped sharply to Rs 5,206 crore in fiscal 2023 from Rs 3,207 crore in fiscal 2022 owing to one-off increase in pooled gas prices. The revenue is expected to decline in fiscal 2024 owing to easing of gas and ammonia prices. Operating profitability was healthy with energy consumed around 5.2 gigacalorie per tonne (Gcal/tonne), compared with 5.3 Gcal/tonne in fiscal 2022. Profitability will further benefit from reduction in freight cost following implementation of the railway siding project, which was completed in the first quarter of fiscal 2024, and is likely to be healthy in the near term. Net debt reduced significantly to Rs 538 crore as on March 31, 2023, from Rs 1,215 crore as on March 31, 2022, with adequate and timely subsidy disbursements. The financial risk profile should remain healthy in the near term with healthy accrual and no significant capital expenditure (capex) requirement.
The ratings continue to reflect the strong managerial and financial support received by the company from its parent, Krishak Bharati Cooperative Ltd (KRIBHCO; ‘CRISIL AA/Stable/CRISIL A1+’), a well-established market position in the urea industry and a healthy financial risk profile. These strengths are partially offset by exposure to regulatory risks in the fertiliser industry. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the support received by KFL from KRIBHCO. |
Key Rating Drivers & Detailed Description Strengths: Strong managerial and financial support from the parent, KRIBHCO 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 extended corporate guarantees for the latter’s bank facilities and NCDs. KFL has a marketing agreement with KRIBHCO for selling its total production of urea and surplus ammonia. Moreover, the company has common directors with KRIBHCO.
Established market position in the urea industry KFL, along with its parent, has prominent presence in the high urea-consuming states of north India, wherein it holds an average 9% market share of the domestic urea production. The company benefits from its large distribution network comprising 9,470 cooperative societies, 2,300 direct dealers and 4,000 retailers. In addition, the favourable location of KFL’s plant, close to markets, lends a significant competitive edge.
Healthy operating performance The plant operated at an estimated average utilisation of 127% in fiscal 2023, as against 112% in fiscal 2022, wherein lower utilisation was because of a 45-day shutdown to implement the energy-savings project.
Operating profitability has improved since fiscal 2022, with reduction in energy consumption on completion of the energy savings capex as well as the increase in pooled gas prices. Currently, energy consumed averages 5.22 Gcal/tonne, compared with 5.3 Gcal/tonne in fiscal 2022. Profitability will also benefit from reduction in freight cost following implementation of the railway siding project, which was completed in the first quarter of fiscal 2024.
While operating profitability in fiscal 2024 is expected to be lower than fiscal 2023 level owing to easing of gas and ammonia prices, it should remain healthy.
Healthy financial risk profile Additional and timely subsidies announced by the government in the last few years have led to significant improvement in the financial risk profile of the company. Gearing reduced to 0.9 time as on March 31, 2023, from 2.6 times as on March 31, 2022. Healthy operating performance, along with reduction in debt, improved the interest coverage ratio to 5.5 times in fiscal 2023, as against 3.8 times in fiscal 2022. The financial risk profile will remain healthy going forward supported by no significant capex and healthy accrual.
As working capital borrowings mainly depend on the subsidy receivables position with the government, a substantial lag in announcing and disbursing additional subsidy requirements could alter the credit metrics of the company and will be a key monitorable.
Weakness: Exposure to regulatory risks in the fertiliser industry Owing to 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 subsidy without increasing prices by urging companies to adopt efficient methods of urea production. In line with these measures, the government has tightened energy consumption norms, impacting profits of urea players. The impact of this norm is partly 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. Deferment in the disbursement of subsidy on account of under-budgeting and change in the regulatory scenario remain key rating sensitivity factors. |
Liquidity: Strong The company has sanctioned bank lines of Rs 4,176 crore, with moderate utilisation during the past 12 months through July 2023. Expected moderate capex in the near term will be funded through internal accrual. Moreover, the company has strong financial flexibility backed by the promoter support received from KRIBHCO. The parent has extended a corporate guarantee for the debt availed by KFL. Also, the company has been able to raise debt at competitive rates without dependence on KRIBHCO. |
Outlook: Stable The business risk profile of KFL will remain comfortable supported by its healthy market position in the urea industry. While the financial risk profile may remain moderate, the company will benefit from the strong linkages with KRIBHCO. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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Unsupported ratings - ‘CRISIL AA’ CRISIL Ratings has introduced the suffix 'CE' for instruments having an explicit credit enhancement feature in compliance with the Securities and Exchange Board of India circular dated June 13, 2019. |
Key drivers for unsupported ratings For arriving at the unsupported rating, CRISIL Ratings has applied its parent notch-up framework to factor in the extent of support received by KFL from KRIBHCO. |
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 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 increased by 26% to 2.19 MTPA from 1.73 MTPA. Its first biofertiliser plant was commissioned in the 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)
~Guaranteed by Krishak Bharati Cooperative Limited (KRIBHCO)
Annexure - Details of Rating Withdrawn
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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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@Sub-limit for letter of credit / standby letter of credit / line of credit / letter of undertaking / bank guarantee / commercial paper lien
&&& Fully interchangeable with working capital loan
#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
>Sub-limit of working capital loan, standby letter of credit, overdraft, import letter of credit, inland letter of credit, bank guarantee, buyers credit, financial bank guarantee (FBG) for buyer's credit, credit equivalent forward contract limit and import letter of credit for capital goods and foreign currency demand loan
><With sub-limit of working capital demand loan and foreign currency loan
##With sub-limit of cash credit
&&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
^Cash credit, letter of credit/standby letter of credit/buyers credit for bank guarantee with sub-limit for loan equivalent risk
@@Fully interchangeable with letter of credit with sub-limit for loan equivalent risk
**With sub-limit of letter of 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
Criteria Details
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