Rating Rationale
October 04, 2023 | Mumbai
Madhya Bharat Agro Products Limited
‘CRISIL A/Stable/CRISIL A1’ assigned to Bank Debt
 
Rating Action
Total Bank Loan Facilities RatedRs.200 Crore
Long Term RatingCRISIL A/Stable (Assigned)
Short Term RatingCRISIL A1 (Assigned)
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 A/Stable/CRISIL A1’ ratings to the bank facilities of Madhya Bharat Agro Products Ltd (MBAPL).

 

Revenue has grown significantly in 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) fertilizer and capacity expansion in di-ammonium phosphate/ nitrogen, phosphorus and potassium (DAP/NPK) fertilizers. However, revenue may moderate slightly 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 above 18%, over the medium term, due to healthy backward integration and benefits of bulk procurement. Ramp-up in capacity of DAP/NPK fertilizers and sustenance of operating margin will be key monitorables.

 

The financial risk profile is healthy with debt of Rs 323 crore as of March 2023 and strong debt protection metrics with interest coverage ratio over 12 times for fiscal 2023. The 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 (Ebitda) ratio sustaining below 3 times over the medium term.

 

The ratings reflect the company’s well-established market position in the SSP fertilizer industry, strong linkages with parent, Ostwal Phoschem India Ltd (OPIL) and robust operating profitability due to backward integration. These strengths are offset by significant capacity expansion leading to moderation of debt protection metrics and exposure to regulatory risks in the fertilizer industry.

 

With softening seen in input and product prices, while NBS rates are awaited, the government’s Rs 1.75 lakh crore subsidy budget is expected to be sufficient this fiscal and, hence, no major build-up is expected. Considering that the fertilizer industry is strategic to the government and highly controlled, any deferment or delays 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:

  • Established market position in the SSP industry with diversification into DAP/NPK: MBAPL is a prominent player in the SSP industry with OPIL (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 from 1.2 lakh metric tonnes (MT) to 2.4 lakh MT in March 2023. 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 monitorable. CRISIL Ratings expects the market position to remain healthy with the established position of OPIL in the SSP industry and the focus on import substitution for DAP/NPK.

 

  • Strong linkages with OPIL and experienced promoters: 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, the promoters have extended a personal guarantee to the debt facilities of MBAPL. The group has common directors with decades of experience in the fertilizer industry.

 

  • Strong operating profitability due to backward integration: MBAPL boasts strong operating margin of 18-20% in recent years, which is higher than its peers. This is 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 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. CRISIL Ratings expects the operating margin to remain above 18% over the medium term, which will be a key monitorable.

 

Weaknesses:

  • Significant capacity expansion leading to moderation in debt protection metrics: MBAPL recently undertook capex in March 2023 to increase capacity of DAP/NPK from 1.2 lakh MT per annum to 2.4 lakh MT per annum. 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 capacity of DAP/NPK by 3.3 lakh MT, SSP by 1.98 lakh MT and matching capacities of phosphoric acid and sulfuric acid. The management plans to fund it through Rs 300 crore of debt and the rest through internal 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 in fiscals 2025 and 2026. Any project cost or time overruns impacting the financial risk profile will remain a monitorable.

 

  • Exposure to regulatory risks in the fertilizer industry: Given the government’s thrust on self-sufficiency in food grain production, the fertilizer industry is strategic but highly controlled. Hence, players are susceptible to regulatory changes. Fertilizer 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 limits were utilised at 75% on average over the 12 months through August 2023. Healthy accrual of more than Rs 90 crore, expected in fiscals 2024 and 2025, is 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 in the next three fiscals of which ~Rs 300 crore will be funded by debt and the rest from internal accrual. Liquidity is also supported by articulation of need-based support from the Ostwal group.

Outlook: Stable

The business risk profile 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, driven by healthy accrual and strong linkages with the Ostwal group.

Rating Sensitivity factors

Upward factors:

  • Significant improvement in the credit profile of OPIL
  • Significant ramp up in capacity utilisation leading to increase in the scale of operations whilst sustaining operating profitability over 20%
  • Improved working capital management leading to lower gross current assets (GCAs)

 

Downward factors:

  • Adverse change in the credit profile of OPIL
  • Lower-than-expected ramp up in capacity utilisation or subdued volumes leading to operating margin sustaining below 16%
  • Larger-than-anticipated, debt-funded capex or acquisitions weakening the financial risk profile
  • Adverse impact of any regulatory/policy change

About the Company

MBAPL was incorporated in 1997 and taken over by the Ostwal group in 2004. It was listed on the National Stock Exchange’s small and medium enterprises platform in 2016 and then shifted to the the main platform in 2019. It manufactures SSP, DAP and NPK fertilizers. It has two plants in Sagar, Madhya Prasdesh, with installed capacity of 2.4 lakh MT of SSP, 99,000 MT of sulfuric acid, 19,800 MT of phosphoric acid and 2.4 lakh MT of DAP/NPK per annum.

 

In the first quarter of the current fiscal, the company reported revenue of Rs 149 crore with profit after tax (PAT) of Rs 7 crore compared to Rs 213 crore and Rs 29 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators*

Particulars

Unit

2023

2022

Revenue

Rs crore

985

492

PAT

Rs crore

124

57

PAT margin

%

12.6

11.6

Adjusted debt / adjusted networth

Times

0.98

0.8

Adjusted interest coverage

Times

13.07

14.17

* As per analytical adjustments made by CRISIL Ratings

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of the
instrument		 Date of
Allotment		 Coupon
Rate (%)		 Maturity
Date		 Issue size
(Rs. Crore)		 Complexity
Level		 Rating assigned
with outlook
NA Fund-based facilities NA NA NA 85 NA CRISIL A/Stable
NA Loan equivalent risk limits NA NA NA 5 NA CRISIL A/Stable
NA Non-fund-based limit NA NA NA 37 NA CRISIL A1
NA Proposed term loan NA NA NA 73 NA CRISIL A/Stable
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 163.0 CRISIL A/Stable   --   --   --   -- --
Non-Fund Based Facilities ST 37.0 CRISIL A1   --   --   --   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Fund-Based Facilities 85 Axis Bank Limited CRISIL A/Stable
Loan Equivalent Risk Limits 5 Axis Bank Limited CRISIL A/Stable
Non-Fund Based Limit 37 Axis Bank Limited CRISIL A1
Proposed Term Loan 73 Not Applicable CRISIL A/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating Criteria for Fertiliser Industry
CRISILs Criteria for rating short term debt
Criteria for Notching up Stand Alone Ratings of Companies based on Parent Support

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