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FY25 to script a turnaround

Q4 sturdy but volume down 23% YoY

Paradeep Phosphates (PARADEEP IN) reported better-than-expected results, driven by higher-than-anticipated profitability in phosphatic fertilizers. But total volumes declined 23% YoY on: (a) shut-down of a urea plant in Goa and (b) less incentive to sell due to adverse nutrientbased subsidy (NBS) regime in Diammonium Phosphate (DAP). Going forward, we expect FY25E EBITDA to improve by 39% as FY24 was marred by inventory loss-related provisions. While H1FY25 may be weak for phosphatic fertilizer industry, we expect PARADEEP to take this in its stride and grow its EBITDA given favorable base.

MCFL merger approval pending from regulators

The approval for PARADEEP’s merger with Mangalore Chemicals and Fertilizers (MCFL) is being sought from the Competition Commission of India (CCI). SEBI is also expected to accord its approval soon. Lenders have already approved the merger. Post merger, the combined entity will become India’s largest fertilizer company with 2.9mn tonnes of phosphatic fertilizer and 0.8mn tonnes of urea capacity.

Working capital down 24% YoY to INR 31bn

Working capital reduced by 13 to 83 days, led by a 15-day reduction in receivables (subsidy + market debtors). It dropped by 24% YoY to INR 31bn. Net debt reduced by INR 6.4bn and current net debt-to-equity is INR 1.1bn

Valuation: Reiterate Accumulate with TP pared to INR 78

Post merger with MCFL, the combined entity may benefit from scale in terms of sourcing, distribution reach and a wider product portfolio. The date and time of the merger are unclear. Hence, we do not incorporate MCFL’sfinancials into PARADEEP’s. FY25E will be year of turnaround for PARADEEP driven by inventory gains, volume growth (5.7% in FY25E), higher backward integration benefit and better NBS regime. We introduce FY26E estimates and lower FY25E EBITDA/PAT estimates by 26%/41% as H1FY25 subsidy regime continues to remain nonremunerative. We roll forward valuation to FY26E and thus pare TP to INR 78 (from INR 84), on 8x FY26E EV/EBITDA – Reiterate Accumulate.

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