| Krishana Phoschem Limited | ||||||
| Suspension Revoked; 'CRISIL A/Stable/CRISIL A1' assigned to Bank Debt | ||||||
| Rating Action | ||||||
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| 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 revoked the suspension of its rating on the bank facilities assigned its ‘CRISIL A/Stable/CRISIL A1’ ratings to the bank facilities of Krishana Phoschem Limited (KPL). CRISIL Ratings had suspended the ratings on 27th September 2012 on account of non-cooperation by KPL with CRISIL Ratings efforts to undertake a review of the ratings. KPL has now shared the requisite information enabling CRISIL Ratings to assign its ratings.
Revenue stood at Rs 323 crore in fiscal 2023 and is expected to grow significantly in fiscal 2024, driven by capacity addition of 3.3 lakh metric tonnes per annum (MTPA) undertaken in March 2023 for diammonium phosphate/nitrogen, phosphorus and potassium (DAP/NPK) fertilisers. Capacity utilisation for the DAP/NPK plant was 35% in the first quarter of fiscal 2024 and further ramp-up will remain a key monitorable. Operating margin was strong at 16% in fiscal 2023 and is expected at 15-17% over the medium term owing to backward integration and bulk procurement. Impact of the nutrient-based subsidy (NBS) rates on the operating performance and sustenance of operating margin will be key monitorables.
The financial risk profile was healthy with debt at Rs 438 crore as on September 30, 2023, and strong debt protection metrics, as reflected in interest coverage ratio over 7 times in fiscal 2023. The debt protection metrics will moderate in fiscal 2024 owing to higher working capital requirement for the additional capacity while the full benefit to profitability will accrue in the near term. However, debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio is expected below 4 times over the medium term.
The ratings reflect the company’s established market position in the single super phosphate (SSP) fertiliser industry, strong linkages with the parent, Ostwal Phoschem India Ltd (OPIL; ’CRISIL A/Stable/CRISIL A1’), and robust operating profitability owing to backward integration. These strengths are partially offset by capacity expansion leading to subdued debt protection metrics and exposure to regulatory risks.
With decline in input and product prices leading to lower NBS rates in the second half of fiscal 2024, the government’s subsidy budget of Rs 1.75 lakh crore will be sufficient this fiscal and hence no major build-up is expected. Considering that the fertiliser industry is strategic to the government and highly controlled, deferment or delay in disbursing subsidy or change in the regulatory scenario will be key monitorables. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong linkages between KPL and OPIL. |
Key Rating Drivers & Detailed Description Strengths:
KPL is an established player in the SSP industry with OPIL (on consolidated level) being the second-largest manufacturer of SSP and market share of ~8% in fiscal 2023. Products are sold under the brand Annadata. The company benefits from the established distribution network of the group comprising 1,400 wholesalers and 15,000 dealers and retailers. Additionally, it has increased its production capacity for DAP/NPK to 3.3 lakh MTPA in March 2023. Capacity utilisation of the DAP/NPK plant reached 35% in the first quarter of fiscal 2024 and is expected to be a key growth driver over the medium term. The market position will remain healthy with the established position of OPIL in the SSP industry and focus on import substitution for DAP/NPK.
The promoter group and OPIL hold ~74% stake in KPL, which is one of the main operating companies of the group with ~21% contribution to revenue in fiscal 2023. KPL benefits from common sourcing of raw materials for the group. Furthermore, OPIL has extended a corporate guarantee and the promoters have extended a personal guarantee to the debt facilities of KPL. The group has common directors with decades of experience in the fertiliser industry.
Operating margin was strong at 16-20%, higher than peers, driven by strong backward integration for raw materials undertaken by the Ostwal group with captive capacity for sulfuric acid, rock phosphate beneficiation as well as phosphoric acid. The group also has long-term supply agreements for procurement of rock phosphate with entities such as Jordan Phosphate Mines Company and mining companies in Rajasthan, for indigenous supply. This ensures continuous availability and lower cost of production. The operating margin is expected at 15-17% over the medium term and will be a key monitorable.
Weaknesses:
KPL recently undertook capital expenditure (capex) of ~Rs 290 crore, which was commissioned in March 2023, to add capacity of 2.4 lakh MTPA for DAP/NPK. This capex, along with large inventory, led to build up of debt to ~Rs 276 crore as on March 31, 2023, and increase in debt to Ebitda ratio to 5.4 times from 1.25 times in fiscal 2021. However, the ratio is expected to moderate below 4 times as the new capacity ramps up. Capacity utilisation of the DAP/NPK plant reached 35% in the first quarter of fiscal 2024. Ramp-up in utilisation will remain a key monitorable.
Given the government’s thrust on self-sufficiency in food grain production, the fertiliser industry is important but highly controlled. Hence, players are susceptible to regulatory changes. KPL is vulnerable to delays in subsidies from the government, leading to higher reliance on working capital loans. Deferment in the disbursement of subsidies on account of under-budgeting and change in the regulatory scenario will remain key monitorables. |
Liquidity: Strong Cash and equivalent were ~2.4 lacs as on March 31, 2023. The sanctioned fund-based limits were utilised at 39% on average over the 12 months through August 2023. Healthy accrual of more than Rs 100 crore, expected in fiscals 2024 and 2025, is sufficient to cover annual repayment of Rs 24-29 crore as well as any incremental working capital requirement. There is no further significant capex planned. Liquidity is also supported by articulation of need-based support from the Ostwal group. |
Outlook: Stable The business risk profile of KPL will sustain over the medium term, driven by healthy market position in SSP, recent expansion of DAP/NPK capacity and strong operating efficiency. The financial risk profile will remain stable, driven by healthy accrual and strong linkages with the Ostwal group. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company KPL was incorporated in 2004 and taken over by the Ostwal group in 2007. It was listed on the National Stock Exchange’s emerge platform in 2017 and then shifted to the main platform in 2019. It manufactures SSP, DAP and NPK fertilizers. It has six plants in Meghanagar, Madhya Prasdesh, with installed capacity of 1.20 lakh MT of SSP, 2.31 lakh MT of sulfuric acid, 99,000 MT of phosphoric acid, 1324 MT of H. acid, 1.98 lakh MT of BRP (Crushing) acid and 3.3 lakh MT of DAP/NPK per annum.
In the first quarter of the current fiscal, the company reported revenue of Rs 165 crore with profit after tax (PAT) of Rs 12 crore compared to Rs 66crore and Rs 6 crore, respectively, in the corresponding period of the previous fiscal. |
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)
* - ICICI Bank Term Loan of Rs 35 Cr. sanctioned amount taken. |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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