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TAN, IMACID & CPC – Next growth drivers

Chambal Fertilisers (CHMB IN) reported mixed Q3, with topline coming in better than our estimates due to higher traded volumes but EBITDA was lower than anticipated due to subdued profitability on traded fertilizer. Urea volume grew 11% to 0.9 mn tonnes, in line and EBITDA per tonne was INR 7,239, as estimated.

The persisting concern about CHMB is EBITDA erosion post expiry of benefits for its G3 plant at Gadepan in Rajasthan in December 2026. The management is focused on growing the business through: (a) investments in TAN plant, and (b) investment in capacity expansion of the Phosphoric acid plant through the Moroccan JV (Indo Maroc Phosphore SA, IMACID). We also expect the Department of Fertilisers to come out with some clarity on normalized return parameters for CHMB’s G3 Urea plant post the expiry of benefits in the next 12-15 months. So, we revise CHMB to Accumulate from Reduce, with TP raised to INR 554 (from INR 516) as we roll forward valuation to March 2027.

Enhancing operating efficiency leading to delays: The construction of a 0.24mn tonne technical ammonium nitrate (TAN) plant at an investment of INR 16.5bn is in full swing and INR 4.7bn has been invested till Q3. CHMB has awarded the contract to construct the plant to L&T and civil foundation of major buildings and structures has been completed. CHMB has reconfigured a few aspects of the TAN plant that has resulted in an increase in the contract cost by INR 320mn but there has been no change in overall project cost. Timeline for the completion of the plant has been extended to Q4FY26

Higher DAP offtake driving trading volume: Traded fertilizer volumes nearly doubled YoY to 0.16mn tonnes, led by higher volumes of di-ammonium phosphate (DAP). Though volumes have surged, traded fertilizer profit nose-dived to INR 135mn and indicative EBITDA per tonne dropped by ~80% to INR 633.

Crop Protection continues to be another bright spot: CHMB continues to report healthy growth in Crop Protection Chemicals and Specialty Nutrients (CPC & SN), led by geographical expansion and products launches. Topline for CPC and SN grew 25% to INR 2.5bn, EBIT grew 38% to INR 597mn and margin rose 200bps to 24.3%. CHMB introduced two herbicides in Q3, which took the new launch count to 12 for 9MFY25.

Revise to Accumulate with TP raised to INR 554: Fertilizer, which is a large part of the current business, is on solid footing but lacks growth drivers. Investment in TAN and proportionate share of investment in the 0.2mn tonne phosphoric acid expansion project (of the Moroccan JV) has eased concern on capital allocation. The management is focused on growing the business through: (a) investments in TAN plant and (b) investment in capacity expansion of the Phosphoric acid plant through the Moroccan JV. We also expect the Department of Fertilisers to come out with some clarity on normalized return parameters for CHMB’s G3 urea plant post expiry of benefits in the next 12-15 months. Hence, we revise CHMB to Accumulate from Reduce with TP raised to INR 554 (from INR 516) as we roll forward valuation to March 2027

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