Detailed Rationale

Crisil Ratings has reaffirmed its 'Crisil A1+' rating on the short-term bank facilities of Rashtriya Chemicals and Fertilizers Limited (RCF).

 

The rating continues to reflect the established market position and healthy operating efficiency of RCF in the urea production business. The company’s business risk profile has been strengthened by diversification into manufacturing of urea and complex fertilisers (comprising about 63% of sales for fiscal 2025), trading of complex fertilisers (around 27%) and manufacturing of industrial chemicals (nearly 10%). The urea plants have healthy utilisation, which is expected to sustain given India’s continued import dependence on urea. Any change in regulatory policies, including tightening of energy efficiency norms, may impact the profitability of the urea division and remains monitorable. Planned capital expenditure (capex) for energy-saving schemes should cushion the profitability of the urea manufacturing units.

 

Revenue stood at Rs 16,993 crore with Ebitda (earnings before interest, taxes, depreciation and amortisation) of Rs 675 crore for fiscal 2025, against Rs 16,962 and Rs 422 crore, respectively, in the previous fiscal. The operating performance recovered due to improvement in the fertiliser manufacturing segment as well as the industrial chemicals segment. This was driven by stabilisation of urea plants from the second quarter of fiscal 2025, healthy realisations and volume growth due to capacity addition in ammonium nitrate (AN) melt segment. Furthermore, low returns in diammonium phosphate (DAP) trading impacted profitability of all players in the complex fertiliser segment. However, Crisil Ratings notes that certain trades were undertaken with assurance that differential above the applicable subsidy rates will be addressed by the Department of fertilisers on a no-profit-no-loss basis, cushioning the impact. Moreover, upward revision in Nutrient Based Subsidy (NBS) rates for complex fertilisers, in line with raw material prices, should support profitability in the trading segment on a steady state basis. While other players are setting up capacities in technical AN and AN melt, overall healthy demand should support profitability of the industrial chemicals segment. Moreover, operating profitability is expected to improve in the near term, with energy efficiency schemes being implemented in the urea plants.

 

Net debt declined to ~Rs 1,700 crore as on March 31, 2025, from Rs 2,930 crore a year earlier owing to lower working capital requirement. Crisil Ratings notes RCF plans significant capex of ~Rs 2,400 crore in the near term towards energy efficiency in the Thal plant (in Raigad, Maharashtra) as well as capacity expansion of NPK fertiliser in the Trombay (in Mumbai) plant. Furthermore, there have been cost overruns in the Talcher joint venture resulting in further investment of ~Rs 1,000 crore by RCF. Majority of this will be funded through debt and will lead to increase in debt in the near term. Hence, net leverage (net adjusted debt/Ebitda) is likely to spike during fiscals 2026 and 2027. However, it shall decline thereafter due to expected improvement in operating profitability following the capex. Being 75% owned by the Government of India also supports the financial flexibility of RCF.

 

The government has also demonstrated its financial support to the fertiliser sector via additional subsidies in the recent past as it is crucial for food security. The announced subsidy of Rs 1.69 lakh crore for fiscal 2026 should be sufficient to meet the requirement. As timely disbursement of the entitled subsidy is crucial for RCF to maintain its robust financial risk profile, any change in policy support or sustained delays in payouts will be monitorable.

 

The strengths are partially offset by the susceptibility of RCF’s operating performance to cyclicality in the industrial products business segment and any change in regulations for the fertiliser industry.

Analytical Approach

Crisil Ratings has considered the consolidated operating and financial risk profiles of RCF.

 

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:

Healthy business risk profile: RCF is a leading player in the domestic urea industry in terms of production capacity, accounting for ~8% of the total production. Manufacturing volume was healthy, with fertiliser sales of 27.2 lakh tonne in fiscal 2024 compared with 28.2 lakh tonne in the previous fiscal. The company has a strong position in Maharashtra, Karnataka and Andhra Pradesh. Diversity in revenue streams across the urea, complex fertilisers and industrial chemicals segments shields profitability from any unfavourable condition in a particular segment and lends stability to cash flow.

 

Healthy operating efficiency in urea production: The urea manufacturing plants operate at healthy utilisation rates, with energy consumed below the prescribed norms. As pre-specified norms form the basis for reimbursement of feedstock cost to fertiliser companies, lower energy consumption results in better profitability. The Thal and Trombay plants operated at energy levels of ~5.9 and 6.45 gigacalorie (Gcal)/tonne, respectively (against energy norms of 6.20 and 6.50 Gcal/tonne), in fiscal 2025, compared with 5.7 and 6.5 Gcal/tonne, respectively, in fiscal 2024. While the energy consumption was impacted by breakdowns in the first half of fiscal 2025, it stabilised at ~5.8 Gcal/tonne in the second half. The Thal plant is expected to operate below 5.7 Gcal/tonne in fiscal 2026. Furthermore, RCF plans energy efficiency capex with the aim to reduce the energy consumption below 5.5 Gcal/tonne. This will mitigate the risk of further tightening of energy norms and aid operating profitability.

 

Comfortable financial risk profile despite significant capex: Gearing declined to 0.58 time as on March 31, 2025, from 0.71 time a year earlier owing to lower working capital requirement. RCF plans capex of ~Rs 2,400 crore in the near term towards energy efficiency in Thal plant as well as capacity expansion of NPK in the Trombay plant. Cost overruns in the Talcher joint venture have led to increase in RCF’s investment by ~Rs 1,000 crore, which will be funded largely through debt in the near term. While this may lead to higher debt in the near term, adjusted gearing should remain below 1 time over the medium term. Moreover, benefits of the capex are expected to yield returns from fiscal 2028 leading to improvement in the financial risk profile.

 

Adequate subsidies announced by the government over the past four fiscals aided the financial risk profile of RCF. As the requirement for working capital borrowing depends mainly on the subsidy receivables position with the government, a substantial lag in announcing and disbursing additional subsidy requirements could affect the credit metrics of RCF. While the government has been extending the required financial support to the fertiliser sector, timely announcement and disbursement of subsidy remains monitorable.

 

Weaknesses:

Cyclicality in the industrial products and complex fertiliser business: The industrial chemicals business is highly commoditised and cyclical. Thus, players are exposed to fluctuation in international prices and the import duty structure for the key products.

 

Profitability in the complex fertiliser business remains susceptible to availability and prices of key raw materials in the international market, along with the NBS rates declared by the Government of India. For instance, there was a significant downward revision in NBS rates during the second half of fiscal 2024, impacting profitability of players.

 

Profitability in the industrial chemicals and complex fertiliser businesses will remain constrained by intense competition from cheaper imports and availability of raw material in the international market, respectively.

 

Exposure to regulatory risks in the fertiliser industry: Given the strong thrust of the government on self-sufficiency in food grain production, the fertiliser industry is strategic but highly controlled. Hence, players are susceptible to regulatory changes. The government is focused on reducing subsidy without increasing prices, by urging companies to adopt more efficient methods for urea production. Accordingly, the government may tighten energy consumption norms, thereby impacting profit of urea players unless they improve energy efficiency. This has happened in the past, with revised energy norms for the Thal and Trombay plants of RCF being applicable from April 1, 2018, and October 1, 2020, respectively.

 

Fertiliser companies are also susceptible to delays in subsidy payments by the government, leading to high reliance on working capital loans. Any deferment in the disbursement of subsidy on account of under-budgeting and any change in the regulatory scenario are key rating sensitivity factors.

Liquidity: Strong

Cash and equivalents stood at ~Rs 68 crore as on May 31, 2025. RCF enjoys strong financial flexibility, driven by access to large unutilised bank limit to support any funding requirement, given the regulated nature of the industry. RCF has access to sanctioned fund-based limits of Rs 8,335 crore, wherein utilisation averaged ~33% for the 12 months through March 2025. Debt obligation of ~Rs 600 crore, including non-convertible debentures worth Rs 500 crore, will be due in fiscal 2026 and cash accrual may not fully suffice to cover the same. However, the healthy financial flexibility of RCF should help in timely refinancing of the debt. Furthermore, easy access to low-cost finance from banks/financial markets aids liquidity.

 

ESG profile

The environmental, social and governance (ESG) profile of RCF supports its already strong credit risk profile.

 

The chemicals sector has a significant impact on the environment, due to the high greenhouse gas emissions and hazardous waste generated from its core operations. In line with this, RCF has been continuously focusing on mitigating its environmental and social risks to minimise impact.

 

ESG highlights

• RCF has been implementing various energy conservation projects. One of the projects is the Trombay Ammonia V Plant Revamp, which is envisaged to result in energy saving of 0.25 Gcal/MT of ammonia and lead to lower emissions.
• Upgrade of the existing effluent treatment plant in Thal has been completed. Company is also exploring setting up of ZLD (zero liquid discharge) plant in Thal unit towards achievement of the zero effluent discharge goal.
• The company has commissioned solar rooftop facilities at Thal, Trombay and soil testing labs with an aggregate capacity of 2.12-megawatt peak to increase clean energy consumption.
• To ensure corporate social responsibility programmes, RCF has focused on community development and has invested in projects for rural development and promoting healthcare, nutrition and education.
• Its governance structure is characterised by strong investor grievance redressal, no whistle blower complaints in fiscal 2024 and extensive disclosures.

 

There is growing importance of ESG among investors and lenders. RCF’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high share of market borrowing in its overall debt and access to capital markets.

Rating sensitivity factors

Downward factors

• Significant and sustained weakening of operating performance, leading to lower-than-expected cash accrual
• Sizeable rise in subsidy receivables beyond 200 days
• Larger-than-expected debt-funded capex or investments
• Substantial adverse impact of any regulatory/policy change

About the Company

RCF was incorporated in 1978, following the reorganisation of the erstwhile Fertiliser Corporation of India Ltd. The company has plants in Trombay and Thal. The Thal unit manufactures urea and some industrial products and has capacity of 20 lakh tonne per annum (TPA). The Trombay unit manufactures various industrial products and has capacity of 3.3 lakh TPA for urea and 6.9 lakh TPA for complex fertilisers. The industrial chemicals portfolio has more than 15 products, such as methanol, methylamines, di-methyl formamide, AN melt, nitric acid and ammonia. RCF has expanded its revenue streams and product portfolio through traded sales of imported DAP and muriate of potash.

 

The Government of India holds 75% of RCF’s equity, while financial institutions and the public own the remaining.

Any other information: Not Applicable