Detailed Rationale

Crisil Ratings has assigned its ‘Crisil A1+' rating to the Rs 300 crore commercial paper of Paradeep Phosphates Ltd (PPL).

 

The rating factors in the company’s well-established market position in the fertiliser industry being the third largest manufacturer of complex fertilisers, diversified product portfolio, strong pan-India distribution, its strong operating efficiency aided by backward integration and long-term raw material supply agreements.

 

The business risk profile is supported by healthy operating performance as reflected in increased revenue of Rs 13,806 crore with earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 9.1% in fiscal 2025, compared to Rs 11,563 crore and 5.5%, respectively, in fiscal 2024. This was driven by growth in sales volume and realisations mainly in the complex fertilizer segment. Profitability improved with upward revision in nutrient-based subsidy (NBS) rates and higher backward integration with increase in phosphoric acid capacity to 5 lakh metric tonne per annum (MTPA) from 3 lakh MTPA in the second quarter of fiscal 2024. The company is backward integrating by increasing sulfuric acid and phosphoric acid capacities. Operating profitability is expected to remain healthy with Ebitda per tonne sustaining above Rs 5,000 per metric tonne (MT) on steady-state basis supported by backward integration, long-term supply agreements and NBS rates in line with international raw material prices on a steady-state basis.

 

Crisil Ratings also notes the ongoing merger between PPL and Mangalore Chemicals and Fertilisers Ltd (MCFL) subject to requisite approvals. This will likely benefit the business risk profile with synergies in terms of economies of scale, stronger distribution network, joint procurement of raw materials and product diversification. However, the merger is unlikely to have a material impact on the overall credit profile of PPL given that the contribution to overall profitability of MCFL will be low. The impact of the merger on the consolidated credit profile will remain monitorable.

 

The financial risk profile is healthy, as indicated by comfortable debt protection metrics with interest coverage ratio of over 4 times for fiscal 2025, against debt of Rs 4,341 crore as on March 31, 2025. PPL is planning significant capital expenditure (capex) of ~Rs 2,000 crore in the next three years for urea energy efficiency schemes, planned expansion in complex fertilizer capacity and backward integration plans. Debt protection metrics are expected to remain comfortable with interest coverage ratio sustaining above 4 times given strong expected accrual despite significant capex. Furthermore, Crisil Ratings does not expect any financial support or guarantees to group entities from PPL. Hence, the financial risk profile is expected to remain healthy with net debt to earnings before interest, tax, depreciation and amortisation (Ebitda) ratio likely to sustain below 2.5 times over the medium term.

 

These strengths are offset by exposure to regulatory risks in the fertiliser industry and high working capital requirement with reliance on subsidy.

 

The government’s Rs 1.68 lakh crore subsidy budget for fiscal 2026 should suffice. While there has been an uptick in raw material prices recently, track record of timely subsidy disbursement and additional allocation in the past had kept subsidy arrears in check. Hence, no major build-up is expected. Given that the fertiliser industry remains highly strategic and controlled by the government, any deferment or delay in disbursing subsidy or any change in the regulatory scenario would be a key rating sensitivity factor.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of PPL and its associate entity.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Established market position in the fertiliser industry: PPL is a prominent player in the complex fertilizer industry, being the third largest manufacturer with a market share of nearly 12% in fiscal 2025. It sold over 3 million tonne of fertilisers in fiscal 2025 which is 20% growth on-year. Its products are sold under the well-known Jai Kisaan and Navratna brands. Its established distribution network comprises over 5,600 dealers and 95,000 retailers across 15 states in India. The ongoing merger with MCFL will further benefit its market position giving access to the southern Indian states and improving product diversification and will remain monitorable. PPL will maintain its healthy market position, backed by its established position in the complex fertilizer industry and structural import dependency for Di-ammonium phosphate/ nitrogen phosphorus and potassium (DAP/NPK) in India.

 

Strong operating efficiency supported by high backward integration: Operating efficiency is driven by strong backward integration for raw materials with captive capacity for sulfuric acid as well as phosphoric acid for majority of its requirement. PPL also has an exclusive long-term supply agreement with OCP S.A. (rated ‘BB+/Positive/B’ by S&P Global Ratings) for procurement of its entire rock phosphate requirement. This ensures continuous availability and lower cost of production. Moreover, the company is enhancing its backward integration to match future expansion plans. The capacity of sulfuric acid will be increased to 18 lakh MTPA from 13 lakh MTPA expected in the third quarter of fiscal 2026 and similarly for phosphoric acid from 5 lakh MTPA currently to 7 lakh MTPA expected from fiscal 2028 onwards. Hence, Ebitda per tonne for complex fertilisers is expected to sustain above Rs 5,000 per tonne going forward. For the urea plant in Goa, actual energy consumption was ~6.8 Gcal/Mt against the norm of 6.89 Gcal/MT. However, actual consumption has reduced to ~6.4 Gcal/MT with efficiency capex completed in the second half of fiscal 2025. Given the expected tightening of energy norms, the company is undertaking further energy efficiency capex with target of reducing the consumption to below 6 Gcal/MT by the end of fiscal 2027. This will support the profitability of the urea plant and will remain monitorable.

 

Weaknesses:

Exposure to regulated nature of the fertiliser industry and volatility in raw material prices: The fertiliser industry is strategic but highly controlled, with fertiliser subsidy being an important component of profitability. The phosphatic-fertiliser industry was brought under the NBS regime from April 1, 2010. Under this scheme, the Government of India fixes the subsidy payable on nutrients for the entire fiscal (with an option to review this every six months), while retail prices are market driven. Manufacturers of phosphatic fertilisers are dependent on imports for their key raw materials, such as rock phosphate and phosphoric acid. The cost of raw materials account for about 75% of the operating income. For instance, profitability was impacted in fiscal 2024 with downward revision in NBS rates. The regulated nature of the industry and susceptibility of complex fertiliser players (including Coromandel) to raw material price volatility under the NBS regime continues to be key rating sensitivity factors. Moreover, tightening of energy norms for the urea sector may impact profitability going forward and will remain monitorable.

 

High working capital requirement with reliance on subsidy: Fertilizer players are also susceptible to delays in subsidies from the government, leading to higher reliance on working capital loans. Debtors were 69 days for fiscal 2025 and are expected to remain below 90 days going forward with track record of timely subsidy release in recent years. 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 stood at ~Rs 1,300 crore and unutilised fund-based limit was around Rs 1,500 crore as on December 31, 2024. Annual cash accrual of Rs 700- 900 crore will suffice against annual debt repayment of Rs 300-400 crore and incremental working capital requirement. Capex of ~Rs 2,000 crore, over the medium term, will be partly funded via debt and rest via internal accrual. Furthermore, largely unutilised fund-based limits of Rs 2,700 crore further supports liquidity.

Rating sensitivity factors

Downward factors

• Larger-than-anticipated debt-funded capex, stretched working capital cycle or support to group entities leading to net leverage sustaining above 3 times
• Adverse impact of any regulatory or policy change

About the Company

PPL was incorporated as a joint venture between the Government of India and the Republic of Nauru (RN) which later divested its stake. Subsequently, the Government of India disinvested 74% of its stake in PPL to Zuari Maroc Phosphates Pvt Ltd (ZMPPL). Post PPL’s initial public offering (IPO) in 2022, the Indian government exited completely with ZMPPL holding ~56% stake in PPL.

 

PPL is a leading fertilizer manufacturer in India with capacities of 2.6 MMTPA of DAP/NPK fertilisers and 0.4 MMTPA for urea with plants in Paradeep, Odisha, and Zuarinagar, Goa.

 

For the first three months of fiscal 2026, profit after tax (PAT) was Rs 256 crore on total income of Rs 3,754 crore, against Rs 6 crore and Rs 2,377 crore, respectively, during the corresponding period of the previous fiscal.

Any other information: Not Applicable