| Madhya Bharat Agro Products Limited | ||||||
| Rated amount enhanced | ||||||
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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 reaffirmed its ‘CRISIL A/Stable/CRISIL A1’ ratings on the bank facilities of Madhya Bharat Agro Products Limited (MBAPL).
Revenue has grown significantly in the recent years and was Rs 985 crore in fiscal 2023, compared to Rs 492 crore in fiscal 2022 and Rs 186 crore in fiscal 2021, driven by higher volumes sold of single super phosphate (SSP) fertiliser and capacity expansion in diammonium phosphate/nitrogen, phosphorus and potassium (DAP/NPK) fertilisers. However, revenue is expected to moderate in the current fiscal, despite increase in volumes, due to lower subsidy per tonne on account of lower nutrient-based subsidy (NBS) rates. The operating margin was strong at 21.6% in fiscal 2023, and is expected to sustain at 15-17% over the medium term, due to healthy backward integration and benefits of bulk procurement. Ramp-up in the capacity of DAP/NPK fertilisers and sustenance of the operating margin will be key monitorables.
The financial risk profile has been healthy, with debt of Rs 273 crore as on September 30, 2023, and strong debt protection metrics (with interest coverage ratio over 12 times for fiscal 2023). Debt protection metrics may moderate in fiscal 2025 due to planned capital expenditure (capex) of over Rs 600 crore (of which Rs 300 crore would be funded by debt). However, the financial risk profile is expected to remain healthy, with debt to earnings before interest, tax, depreciation and amortisation ratio sustaining below 3 times over the medium term.
The ratings continue to reflect the well-established market position of MBAPL in the SSP fertiliser industry, strong linkages with the parent, Ostwal Phoschem India Ltd (OPIL; ‘CRISIL A/Stable/CRISIL A1’) and robust operating profitability due to backward integration. These strengths are partially offset by significant capacity expansion, leading to moderation of debt protection metrics, and exposure to regulatory risks in the fertiliser industry.
With softening of input and product prices leading to lower NBS rates during the second half of fiscal 2024, the government’s Rs 1.75 lakh crore subsidy budget should 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, any deferment or delay in disbursing subsidy or any change in the regulatory scenario would be a key rating monitorable. |
Analytical Approach CRISIL Ratings has applied its parent notch-up framework to factor in the strong linkages between MBAPL and OPIL. |
Key Rating Drivers & Detailed Description Strengths:
MBAPL is a prominent player in the SSP industry with OPIL (on a consolidated level including MBAPL) being the second largest manufacturer of SSP with market share of ~8% in fiscal 2023. Its products are sold under the well-known Annadata brand. 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 2.4 lakh metric tonne per annum (MTPA) in March 2023 from the previous 1.2 lakh MTPA. The capacity utilisation of the DAP/NPK plant reached 53% in the first quarter of fiscal 2024 and is expected to be the main revenue growth driver over the medium term. Ramp up in production, leading to increased volumes, will remain a key monitorable. The market position is likely to remain healthy with the established position of OPIL in the SSP industry and the focus on import substitution for DAP/NPK.
The promoter group and OPIL hold ~74% stake in MBAPL, which is the main operating company of the group with ~60% contribution to revenue in fiscal 2023. It 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 MBAPL. The group has common directors, with decades of experience in the fertiliser industry.
MBAPL reported strong operating margin of 18-20% in recent years, which is higher than its peers, driven by strong backward integration for raw materials undertaken by the Ostwal group with captive capacity for sulfuric acid, rock phosphate beneficiation and phosphoric acid. The group also has long-term supply agreement for procurement of rock phosphate with entities such as Jordan Phosphate Mines Company for import and Rajasthan mining companies for indigenous supply. This ensures continuous availability and lower cost of production. The operating margin is projected at 15-17% over the medium term and will be a key monitorable.
Weaknesses:
MBAPL undertook a capex in March 2023 to increase capacity of DAP/NPK (to 2.4 lakh MTPA from 1.2 lakh MTPA). The capacity utilisation of the DAP/NPK plant reached 53% in the first quarter of fiscal 2024. Ramp-up in capacity utilisation will remain a key monitorable.
Furthermore, the company has planned capex of ~Rs 650 crore over the next three fiscals for expansion of DAP/NPK capacity by 3.3 lakh MTPA, SSP by 1.98 lakh MTPA and matching capacities of phosphoric acid and sulfuric acid. This capex will be funded through Rs 300 crore of debt and the rest through internal cash accrual. While the debt would be drawn in fiscals 2025 and 2026, the capacity will be commercialised from fiscal 2027 onwards. This will lead to moderation of debt protection metrics during fiscals 2025 and 2026. Any project cost or time overruns impacting the financial risk profile will remain a key monitorable.
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. Fertiliser players are susceptible to delays in subsidies from the government, leading to higher reliance on working capital loans. Any deferment in the disbursement of subsidies on account of under-budgeting and any change in the regulatory scenario remain key rating sensitivity factors. |
Liquidity: Strong Cash and equivalent were Rs 21 crore as on March 31, 2023. The sanctioned fund-based limit was utilised at about 75% during the 12 months through August 2023. Cash accrual is projected at more than Rs 90 crore per annum for fiscals 2024 and 2025, sufficient to cover annual repayment of Rs 12-15 crore as well as any incremental working capital requirement. The company is planning capex of ~Rs 650 crore over the next three fiscals, of which ~Rs 300 crore will be funded by debt and the rest via cash accrual. Liquidity is also supported by articulation of need-based support from the Ostwal group. |
Outlook: Stable The business risk profile of MBAPL will sustain over the medium term, driven by healthy market position in SSP, expansion of DAP/NPK capacity and strong operating efficiency. The financial risk profile will remain stable, led by healthy cash accrual and strong linkages with the Ostwal group. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company MBAPL was incorporated in 1997 and taken over by the Ostwal group in 2004. It was listed on the small and medium enterprises platform of National Stock Exchange in 2016 and then shifted to the main platform in 2019. It manufactures SSP, DAP and NPK fertilisers. It has two plants in Sagar, Madhya Prasdesh, with installed capacity of 2.4 lakh MTPA of SSP, 99,000 MTPA of sulfuric acid, 19,800 MTPA of phosphoric acid and 2.4 lakh MTPA of DAP/NPK.
In the first half of fiscal 2024, the company reported revenue of Rs 427 crore with profit after tax (PAT) of Rs 22 crore, compared to Rs 462 crore and Rs 61 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)
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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