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All eyes on approval for MCFL merger

Paradeep Phosphates (PARADEEP IN) reported mixed Q3. Topline growth came in higher than expected, led by 12% outperformance on volumes and 11% on price. EBITDA came in 9%, lower than anticipated, driven by a 38% rise in other expenses. Blended EBITDA per tonne declined 19% to INR 3,863 due to higher share of traded fertilizers. PARADEEP’s merger with Mangalore Chemical & Fertilizers (MCFL IN, Not Rated, CMP INR 172) is pending approval from the regulators. We remain bullish on PARADEEP as post-merger, PARADEEP will morph into a fertilizer behemoth. Maintain Buy with a higher TP of INR 136 (from INR 129), on 10x (unchanged) FY27E EV/EBITDA.

Committed to investing INR 40bn in Odisha:

PARADEEP has signed an MoU (memorandum of understanding) with the Government of Odisha to invest INR 40bn in the next few years. Of this, INR 30bn will be invested in fertilizer grade phosphoric acid plant, sulphuric acid plant and granulation plant. The remaining INR 10bn may be invested in green ammonia and merchant grade phosphoric acid plant at a later date. Post the merger with MCFL, PARADEEP is also planning to invest in fertilizer capacities in Morocco. Other details have not been shared by the management.

Current capacity expansion plans progressing well:

Capacity expansion for Sulphuric acid (0.6mn tonnes) is progressing well and commercial production may start H2FY26 onwards. Debottlenecking of 0.2mn tonnes of phosphoric acid plant is also on track.

Market shifting to complex fertilizers:

Driven by margin squeeze in DAP (diammonium phosphate), due to lower realization (MRP + subsidy) and high raw material price, the product is seeing consistent supply shortages in India. Consequently, market is shifting from DAP to NPK, which has reflected in PARADEEP’s volume mix as well. Its DAP volume has grown by 6% YoY to 0.22mn tonnes, whereas other complex fertilizers have cumulatively clocked 68% volume growth to 0.4mn tonnes. While the shift is being led by shortages, PARADEEP is promoting balanced nutrition. If the situation persists, there can be a permanent shift to this category even if there is course correction in the future.

Price chart

Source: Bloomberg

Retain Buy with a higher TP of INR 136:

Post the merger with MCFL, the combined entity will benefit from scale, sourcing, distribution reach and a wider product portfolio. We expect PARADEEP to further expand its complex fertilizer capacity by 1mn tonnes and phosphoric acid capacity by 0.5mn tonnes, while continuing with expansion in sulphuric acid.

Based on these assumptions, expect topline, EBITDA and PAT CAGRs at 12%, 17% and 28%, respectively through FY25E-30E. We have incorporated MCFL’s financials into PARADEEP’s FY26E onwards. We roll forward valuations to March 2027E and reiterate Buy with TP raised to INR 136 (from INR 129), based on 10x (unchanged) FY27E EV/EBITDA.

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