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Hike in subsidies to lift profitability

The Government of India announced a total subsidy of ~INR 373bn for the P&K fertilisers for the upcoming Kharif season (1HFY26) which is ~43% higher than the total subsidy (including retrospective additional DAP subsidy) for 1HFY25. Further, based on the NBS policy rates, the subsidies for DAP and NPK-20 have been increased by 10% and 15% YoY respectively for 1HFY26. This is likely to result in higher gross spreads for Paradeep Phosphates in 1HFY26 (vs. 2HFY25), assuming raw material prices remain at this level. We were already building in gross spread improvement anticipating Government’s favourable action on the subsidy front. As a result, we revise upwards our FY26E/27E EBITDA estimates by 2%/1% and EPS estimates by 3%/1%. We expect Paradeep Phosphates to register sales/EBITDA/PAT CAGR of ~10%/22%/36% over FY25E-27E. The stock is currently trading at ~7x Mar’27E EV/EBITDA. We reiterate BUY with an unchanged Mar’26 TP of INR 145/share (based on 9x Mar’27E EBITDA, 10% discount to Coromandel’s fertiliser business).

* ~INR 372bn subsidy announced for 1HFY26 (Kharif season): The Government of India has announced Nutrient Based Subsidy (NBS) of ~INR 372bn for the Kharif season (1HFY26) (refer Exhibit 1) for phosphatic and potassic fertilisers. This is ~52% higher than the ~INR 244bn subsidy announced for 1HFY25. However, there was an additional ~INR 26bn subsidy announced as a part of special package for DAP fertilisers (on a retrospective basis) for Apr’24-Dec’24. Accounting for that, total subsidy in 1HFY26 is higher by ~43% (vs. 1HFY25).

* DAP and NPK subsidies hike…: As per the latest government notification for 1HFY26 (Kharif season), the subsidy per kg for the nutrients Nitrogen (N), Phosphorus (P), Potassium (K) and Sulphur (S) stood at INR 43.02, INR 43.6, INR 2.38, and INR 2.61 respectively (refer Exhibit 2). Based on these figures and the proportion of the nutrients in fertilisers, the subsidy for DAP comes out to be ~INR 27,800/MT and the subsidy for NPK20 comes out to be ~INR 17,663/MT for 1HFY26 (refer Exhibit 3). This is a 10% YoY increase from ~INR 25,175/MT subsidy for DAP and 15% YoY increase from ~INR 15,394/MT subsidy for NPK-20 in 1HFY25 (refer Exhibit 3).

* …to lift profitability for Paradeep Phosphates: The prices of ammonia and phosphoric acid, primary raw materials of DAP and NPK grades, have increased in FY25TD (refer Exhibits 6 & 7). Ammonia prices have gone up ~25% YoY in Mar’25 while phosphoric acid prices have seen an increase of ~14% YoY. With an increase in subsidies as mentioned above, in 1HFY26, the DAP gross spread is likely to improve to ~INR 4,412/MT (from an average spread of ~INR 3,152/MT in 2HFY25) and the NPK-20 is likely to improve to ~INR 15,484/MT (from an average spread of ~INR 13,044 in 2HFY25). This would result in higher EBITDA/MT for Paradeep Phosphates.

* Reiterate BUY with Mar’26 TP of INR 145/share: Considering we were already building in a favourable subsidy announcement, we are raising our EBITDA/MT only by ~INR 75/MT in FY26E and ~INR 40/MT in FY27E. As a result, our FY26E/FY27E EBITDA estimates are revised upward by 2%/1% while our EPS estimates are revised upwards by 3%/1%. We continue to believe that PPL is on a strong footing on account of – i) steady growth in volumes, ii) improved product mix, iii) 100% phosphoric acid backward integration, iv) Goa facility energy cost savings, and v) MoU with Odisha Government providing longterm volume growth visibility. We estimate PPL to register a 10%/22%/36% sales/EBITDA/EPS CAGR over FY25E-27E. We reiterate BUY with an unchanged Mar’26 TP of INR 145/share (based on 9x Mar’27E EBITDA, ~10% discount to Coromandel’s fertiliser business)

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