Buy Paradeep Phosphates Ltd For Target Rs. 160 By JM Financial Services
Fantastic quarter led by favourable product mix
Paradeep Phosphates’ 4QFY25 earnings print was significantly better than our and Street estimates on account of strong volume growth in an otherwise lean quarter, and gross spread expansion due to favourable product mix. On a full year basis, the company achieved its overall sales volume (including trading) guidance of 3MMT by FY25 (ahead of its guidance of FY26). To continue its 5-7% p.a. volume growth ambition over the next 2-3 years, it is in the process of debottlenecking its capacities by ~5-7%. Going forward, we believe that the company will be able to continue showing robust volume growth owing to a favourable monsoon. As a result, we expect Paradeep to register ~7% volume growth CAGR over FY25- 28E. Further, i) benefits from phosphoric backward integration, ii) Goa energy efficiency project, and iii) NPK volume as % of overall volume increasing to ~73%, will likely lead to EBITDA/kg inching up to ~INR 5/kg in FY27E from INR 4.1/kg in FY25. Factoring this, we raise our FY26/27 EBITDA and EPS estimates by 7-10%. We expect Paradeep to register 14%/19% EBITDA/EPS CAGR over FY25-28E. We maintain BUY with a revised Mar’26 TP of INR 160/share (based on 9x Mar’27E EBITDA, ~10% discount to Coromandel’s fertiliser business).
* EBITDA beat on account of gross margin expansion: Paradeep’s 4QFY25 consolidated gross profit came 48% above JMFe at INR 9.8bn (up 6%/66% QoQ/YoY) on account of higher-than-anticipated gross margin of 28.1% (vs. JMFe of 22.3% and 22.7%/26.4% in 3QFY25/4QFY24) with revenue coming 17%/10% above JMFe/consensus at INR 34.9bn (down 15% QoQ while up 56% YoY). During the quarter, other expenses were higher at ~INR 5.7bn (vs. JMFe of INR 4.5bn and INR 5.3bn in 3QFY25). As a result, EBITDA came in 111%/41% above JMFe/consensus at INR 3.5bn (up 3%/134% QoQ/YoY). Further, PAT was 415%/160% above JMFe/consensus at INR 1.6bn (up 1%/644% QoQ/YoY).
* Fertiliser sales volume higher than anticipated: In 4QFY25, total fertiliser sales volume came in higher than anticipated at ~744KT (13% above JMFe) as NPK-20 volume was higher than anticipated at ~322KT (47% above JMFe, up 61% YoY) and Other NPK volume was higher than anticipated at ~125KT (57% above JMFe, up 73% YoY), more than offsetting lower than anticipated DAP volume at ~119KT (28% below JMFe, down 22% YoY). Urea volume was also higher than anticipated at ~101KT (41% above JMFe, up 55% YoY). Further, traded products volume was lower than anticipated at ~76KT (38% below JMFe).
* Gross margin expansion due to decline in DAP as % of phosphatic volume: In 4QFY25, on account of DAP as % of phosphatic volume coming down to 21%, gross profit came in much higher than anticipated at INR 13.2/kg (vs. JMFe of INR 10.1/kg and 12.1/kg in 4QFY24). Despite opex coming in at ~INR 8.5/kg (vs. JMFe 7.6/kg and ~INR 9.1/kg in 4QFY24), EBITDA (including trading EBITDA) came in higher than anticipated at ~INR 4.7/kg (vs. JMFe of ~INR 2.5/kg and ~INR 3/kg in 4QFY24).
* EBITDA to reach ~INR 4.9-5.0/kg by FY27E: Paradeep’s FY25 EBITDA stood at INR ~4.1/kg. Given that its capacities are fungible, it is targeting more value-added products, resulting in product mix moving towards high-margin NPK grades, which will bring down the proportion of low-margin DAP volume. The company is targeting 100% backward integration for phosphoric acid by FY27E, which could generate ~INR 500mn in FY26E and INR ~2bn in FY27E in savings. The energy savings project at the Goa facility could save ~INR 450mn per year. Further, cumulatively over FY25-27E, increase in volume can contribute ~INR 2.1bn and product mix and cost synergies can contribute ~570mn to the overall EBITDA. These measures could take PPL’s EBITDA to ~INR 4.9-5.0/kg in FY27E. As a result, we expect its fertiliser EBITDA to reach ~INR 17.6bn by FY27E from ~INR 12.6bn in FY25. This results in an EBITDA CAGR of ~14% over FY25-27E.
* Net working capital cycle decreased to 74 days in FY25: During FY25, net working capital days improved to 74 days (vs. 97 days in FY24) due to reduction in receivable days to 67 days (vs. 86 in FY24) and payable days increasing to 54 days (vs. 47 days in FY24). Further, inventory days increased slightly to 60 days (vs. 58 days in FY24). This improvement in working capital cycle has enabled Paradeep to reduce its net debt to INR 34.1bn in FY25. Further, the net debt for FY27E stands at INR 29.3bn after considering a capex of INR 10bn over FY25-27E.
* Estimate 14%/19% EBITDA/EPS CAGR over FY25-28E, maintain BUY: On account of robust growth in volume, improved product mix, 100% phosphoric acid backward integration and Goa facility energy cost savings, we expect PPL’s EBITDA to reach INR 4.9- 5.0/kg in FY27E from INR 4.1/kg in FY25. Factoring in this, our FY26E/27E EBITDA and EPS estimates are revised upwards by ~7%/8% and ~8%/10% respectively. We estimate PPL to register a 6%/14%/19% sales/EBITDA/EPS CAGR over FY25-28E. We maintain BUY with a revised Mar’26 TP of INR 160/share (based on 9x Mar’27E EBITDA, ~10% discount to Coromandel’s fertiliser business) (from INR 145/share earlier).
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SEBI Registration Number is INM000010361
