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A private player in phosphatic fertilizer segment

Paradeep Phosphates Limited (PPL) is the 2nd largest private sector manufacturer of non -urea fertilizers in India and the 2nd largest private sector manufacturer in terms of DiAmmonium Phosphate (DAP) in 9MFY22 volume sales. Incorporated in 1981, PPL is a joint venture of Zuari Agro Chemicals Limited (ZACL) and OCP Group S.A. (OCP), which currently holds 80.45% of the equity share capital of the Company, with the balance being held by the Government of India. They are primarily engaged in manufacturing, trading, distribution and sales of fertilizers such as DAP, three grades of NitrogenPhosphorus-Potassium (NPK), Zypmite, Phospho-gypsum etc. with a strong presence in the eastern part of India. Their fertilizers are marketed across 14 states under the brand names ‘Jai Kisaan – Navratna’ and ‘Navratna’. PPL’s manufacturing facility is located in Paradeep, Odisha.

• The domestic demand for fertilizers is expected to reach 66 million tonnes by FY26, growing at a CAGR of 2.9%-3.1% and the Phosphatic fertilizers segment is expected to grow at a CAGR of 4.2%-4.4% between FY22 to FY26.

• PPL’s revenue from operations and PAT for 9MFY22, was ₹5,960cr and ₹362.8cr, which grew 9% and 18% CAGR in FY19-21 respectively. Avg. EBITDA margin is at ~10% and PAT margin at 5% during the same period.

• As of March 31, 2022, PPL’s outstanding borrowing is ₹ 2,957cr with a D/E ratio of 1.1. The Company proposes to utilise ₹ 300cr from the net proceeds towards repayment.

• PPL has entered into a business transfer agreement with ZACL for the purchase of its fertilizer plant in Goa, which will provide PPL access to the additional product mix especially in Urea segment, resulting in a more diversified product portfolio. PPL will also gain access to ‘Jai Kisaan’, one of the key fertilizer brands in India.

• PPL is currently in the process of increasing the production capacity to 1.8 million MT from 1.2 million MT which is expected to be completed by May 2022 and to reach 3 million MT after acquiring Goa facility.

• At the upper price band of Rs.42, PPL is available at P/E of 7.1x (FY22 annualized) which is attractive on a short to medium term basis. PPL is well-positioned to capture favourable Indian fertilizer industry dynamics supported by conducive government regulations, driving raw material efficiency through backward integration of facilities and effective sourcing and established brand name backed by an extensive sales and distribution network. Considering PPL’s expansion plans, deepening the presence in western and southern regions of India, we assign a ‘Subscribe’ rating for the issue on a short to medium basis.

Purpose of IPO

The offer comprises of fresh Issue (₹1,004cr) and an offer for sale (₹498cr) by the selling shareholders (GoI selling its entire stake). The objects of the offer are to 1)Part financing of the acquisition of the Goa facility (₹520cr)2. Repayment/ prepayment of certain of the borrowings (₹300cr) 3. General corporate purposes.

Key Risks

• PPL intends to acquire the Goa Facility, which has incurred a loss after tax in each of the past three financial years.

• Historically derived a significant portion of the revenues from a limited number of states, namely Maharashtra, Uttar Pradesh and Odisha(~50%).

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