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Salient features of the IPO:

• Fertilizer company Paradeep Phosphates Ltd. (PPL), is coming up with an IPO to raise around Rs. 1,500cr, which opens on 17th May and closes on 19th May 2022. The price band is Rs. 39 - 42 per share.

• The Government of India as one of the promoter entities, is fully offloading its stake (19.55%) in the company.

• The IPO is a combination of fresh issue and OFS portion. The company will not receive any proceeds from the OFS portion. Of the fresh issue net proceeds, Rs. 520cr will be used to partially fund the acquisition of Goa facility and another Rs. 300cr will be utilized for repayment/prepayment of the borrowings availed by the company.

Key competitive strengths:

• Well-positioned to capture the favorable Indian fertilizer sector dynamics supported by conducive government regulations

• Second-largest manufacturer of phosphatic fertilizers in India

• Driving raw material efficiency through backward integration of facilities and effective sourcing

• Secure and certified manufacturing facility & infrastructure and unutilized land available for expansion

• Strategic location of the manufacturing facility and sizeable material storage, handling and port facilities

• Established brand name backed by an extensive sales and distribution network

• Strong parentage, experienced management team and prominent shareholders

Risk and concerns:

• Dependence of business on seasonal fluctuations and climatic variations

• Unfavorable government policies and regulations

• Delay in receiving the subsidy payments from the government

• Unfavorable sales-mix

• Unfavorable fertilizer prices and cost of production

• Competition

Below are the key highlights of the company:

• Mainly on account of higher crop intensity, rising per capita food consumption & dietary changes, per capita rise in income, ease of credit availability and high subsidy support from the government, the demand of fertilizer in India is estimated to grow by 2.9-3.1% CAGR over FY22-26 to reach 66mn tonnes by FY26. Moreover, the government is focusing on improving the soil fertility which will result in higher usage of phosphatic and complex fertilizers. Phosphatic fertilizer is the fastest growing segment in the domestic fertilizer sector and is anticipated to grow at 4.2-4.4% CAGR over FY22-26 as compared to a growth of 1.8-2.2% CAGR of urea.

• The government has decontrolled the retail prices for phosphatic fertilizers. As per the Nutrient based Subsidy Policy (NBS), the subsidies on phosphatic fertilizers is fixed at the nutrient level and producers have the freedom to fix retail prices. Private fertilizer manufacturers like PPL largely sell phosphatic and complex fertilizers, which come under the NBS scheme and thus are not as regulated as urea thereby allowing it to innovate on the products and fix prices based on market dynamics.

• Incorporated in 1981, PPL is promoted by a JV company between the Zuari Agro Chemicals Ltd. and OCP Group S.A. Pre-issue, this JV company held 80.45% stake, which will reduce to 56.10% post-IPO. The Government of India holds the rest (i.e. 19.55% in the company) and will fully offload its stake from this IPO.

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