Paradeep Phosphates Limited (PPL)
was incorporated in 1981 as a joint venture between the Government of India
(GoI) and the Republic of Nauru to set up facilities for the manufacture of
di-ammonium phosphate (DAP) at Paradeep, Orissa. In 1993, the Republic of Nauru
disinvested its equity stake to the GoI and PPL became a public sector
enterprise wholly owned by the GoI.
In February 2002, GoI disinvested
74% of PPLs equity in favour of Zuari Maroc Phosphates Private Limited
(ZMPPL), a 50:50 joint venture between Zuari Industries Limited (ZIL, a K.K.
Birla Group company) and Maroc Phosphores, Morocco (part of OCP Group,
Morocco). ZIL was demerged into ZuariAgro Chemicals Limited (earlier Zuari
Holdings Limited) and Zuari Global Limited w.e.f. July 1, 2012. Currently,
ZMPPL holds 80.45% stake in PPL, while the remaining 19.55% is held by the GoI.
The company is engaged in the
manufacture of DAP, complex fertilizers of NPK (Nitrogen, Phosphorous and
Potassium) grades, and zypmite (gypsum-based product). The company is also
involved in trading of fertilizers, ammonia, neutralized phospo gypsum,
micronutrient and other materials. With its head office at Bhubaneswar and
various regional offices across the country, the company caters to the demands
of farmers all over the country through its Navratna brand of fertilizers.
The company is the second largest
private sector manufacturer of non-urea fertilizers in India and the second
largest private sector manufacturer in terms of DAP volume sales for the nine
months ended December 31, 2021.
The company is a part of the Adventz
group, as well as OCP. The founding chairman of the Adventz group was the late
Dr. K.K. Birla and the current chairman is Mr. Saroj Kumar Poddar. The Adventz
group operates in several businesses and has a strong presence in the
agribusiness, engineering and infrastructure businesses and emerging lifestyle
business. OCP, founded in 1920, with revenues of over US$6.3 billion in 2020,
is one of the leading producers of phosphate rock globally and operates largely
in the morocco and WesternSahara region which has approximately 70% of the
global phosphate rock reserves, and is owned 95% by the Moroccan government.
Phosphate rock is processed to
produce phosphorous, which is one of the three main nutrients commonly used in
fertilizers (the other two are nitrogen and potassium). India has negligible
phosphate reserves and is dependent on imports of phosphate rock (a source raw
material) or phosphoric acid (an intermediate raw material) or DAP (finished
phosphatic fertilizer).
The company manufacturing
facility is at Paradeep, Odisha and includes a DAP and NPK production facility,
a sulphuric acid production plant and a phosphoric acid production plant. It
utilizes sulphuric and phosphoric acids for manufacturing DAP and NPK.
As of March 31, 2022, total
annual granulation capacity of DAP and NPK production plant was approximately
1.5 million tonne per annum (mtpa) while the total annual installed capacity of
sulphuric acid production plant was approximately 1.30 mtpaand total annual
installed capacity of phosphoric acid production plant was 0.30 mtpa. In
addition, the plant has three operational concentrators to concentrate weak
phosphoric acid into strong phosphoric acid.
It also has facilities to store
raw material in Paradeep, Odisha and at any point of time, it can store 120,000
tonnes of phosphate rock, 65,000 tonnes of phosphoric acid solution, 55,000
tonnes of sulphur, 45,000 tonnes of sulphuric acid, 40,000 tonne of liquid
ammonia and 35,000 tonnes of MOP.
The company is currently in the
process of increasing the annual granulation capacity of its DAP and NPK
production plant to 1.8 mt from 1.5mt, which it expects will be complete by May
2022. It intends to retrofit a new phosphoric acid production plant to increase
its phosphoric acid annual production by 120,000 tonne and also intend to
install a new evaporator to increase annual production of strong phosphoric
acid by 116,000 tonnes.
The company also have two captive
power plants of 16 MW each, designed to run on the excess steam generated by
the sulphuric acid production plant. Its manufacturing facility is
strategically located close to the Paradeep port and has a closed conveyor belt
which is 3.4 km long connecting the Paradeep port to manufacturing facility. At
the Paradeep port, it has a captive berth with 14 meters draft with facilities
to unload solid and liquid cargo. In addition, it owns a railway siding and a
cross country pipeline. This enables it to transport raw material directly to
its facility.
The company has established an
extensive sales and distribution network, with a strong presence in the eastern
part of India. As of March 31, 2022, it distributed products across 14 states
in India through network of 11 regional marketing offices and 468 stock points.
Its network includes 4,761 dealers and over 67,150 retailers, catering to over
five million farmers in India, each as of March 31, 2022.
The company primary raw materials
include phosphate rock, phosphoric acid, sulphur, ammonia and MOP (muriate of
potash). It sources raw materials locally as well as from various other
countries such as Morocco, Jordan, Qatar and Saudi Arabia.
The Offer and the Objects
The offer comprises fresh issue
of 239047619 equity shares at upper price band of Rs 42 and 257435897 equity
shares at lower price band of Rs 39 aggregating up to Rs 1004 crore by the
company and an offer for sale by GoI selling shareholder of up to 118507493
equity shares and Zuari Maroc Phosphates Private Limited of upto 6018493 equity
shares aggregating to Rs 498 crore at the upper price band of Rs 42 and Rs 462
crore at lower price band of Rs 39.
The company will not receive any
proceeds from the offer and all the offer proceeds will be received by the
selling shareholders, net of its proportion of offer related expenses and the
relevant taxes thereon.
Promoter GoI selling shareholder
post-issue shareholding shall decrease to nil from 19.55% pre issue
shareholding while Zuari Maroc Phosphates Private Limited post-issue
shareholding shall decrease to 56.1% from 80.45% pre issue shareholding
The company proposes to utilize
the net proceeds of the fresh issue towards part-financing the acquisition of
the Goa facility amounting to Rs 520 crore, repayment/prepayment of certain
borrowings amounting to Rs 300 crore, and balance towards general corporate
purposes. As on March 31, 2022, the aggregate outstanding borrowing of the
company is Rs 2957.014 crore.
The company entered into a
business transfer agreement (BTA) dated March 1, 2021, with ZACL for the
purchase of its fertilizer plant in Goa facility as a going concern on a slump
sale basis, for a total consideration equal to the enterprise value of Rs 2052.3
crore. The company shall utilise Rs 520 crore from the net proceeds towards
part financing the acquisition of the goa facility.
The remaining consideration will
be funded from the internal accruals of the company. The goa transaction will
complete on completion of this offer and payment of the consideration from the
net proceeds of the fresh issue, and upon such completion, it will acquire the
business of manufacturing, distributing and/or trading of DAP, Urea, NPK and
MOP products, each of which is currently being carried out at the goa facility.
This facility is strategically
located close to the Mormugao port and includes two NPK production plants (NPK
A and NPK B), an ammonia production plant and a urea production plant. As of
March 31, 2021, the total annual fertilizer capacity of the Goa plant is 1.2 mt
per annum, with a breakup of 0.4 million tonne per annum of urea and 0.8 mt per
annum of phosphates. In addition, the plant also manufactures about 0.23
million tonne per annum of ammonia, which is largely utilized in the production
of urea.
The Goa facility also has a
captive power plant, a railway siding, infrastructure to store raw material and
finished goods and a bagging plant. Raw materials are imported and handled at
the Mormugao port, Goa, where the Goa facility has unloading and storage
facilities, and subsequently transferred to the factory site by road tankers or
trucks
Strengths
The demand for fertilizers in
India is expected to reach approximately 66 mt by FY 2026 growing at a CAGR
(compounded annual growth rate) of 2.9%-3.1% from FY2022 to FY2026.
Phosphatic fertilizers are the
fastest growing segment in the Indian fertilizer industry. The phosphatic
fertilizers segment is expected to grow at a CAGR of 4.2%-4.4% from FY2022 to FY2026
compared to the expected growth of the urea segment at a CAGR of 1.8%-2.2% from
FY2022 to FY 2026.
The company is one of the largest
manufacturers of DAP/NPK fertilisers in India with a total installed capacity
of 1.5 mtpa. The capacity will increase further to 1.8 mtpa in FY2023. Post the
acquisition of ZACL’s assets the company will have around 2.6 mtpa of annual
manufacturing capacity of phosphatic fertilisers making it the third largest
P&K manufacturer in the country.
The company enjoys leading market
share in most of its territories like Orissa, West Bengal, Bihar and Uttar
Pradesh. With acquisition of ZACL’s assets, it will enhance its market reach to
the Southern and Western markets.
The ideal N:P:K nutrient balance
for Indian soil is 4:2:1 while the actual ratio was 7.1:2.7:1 at the end of
FY2019. The nutrient imbalance is a result of overuse of urea and low use of
NPK which makes the soil acidic. With schemes like soil health cards being
implemented by GoI to determine the soil health and advice to farmers on the
right fertilisers to use the demand outlook for P&K fertilisers remains
positive.
Domestic demand for P&K
fertilisers stands at around 25-28 mt whereas the domestic capacity for P&K
fertilisers is about 15.8 mt resulting in significant portion being met through
imports. Thus, the offtake risk remains low.
One of the promoters of Paradeep
Phosphates is Office Cherifien des Phosphates (OCP), Morocco, which is one of
the largest producers of phosphoric acid globally. The company procures part of
its phosphoric acid requirement from OCP. Since OCP is one of its promoters,
the company does not face any challenges in procurement of its key raw material
The company has backward
integrated its manufacturing process by producing the two other key raw
materials by value, phosphoric acidand sulphuric acid. For the nine months
ended December 31, 2021, and the FYs 2021, 2020 and 2019, it produced 36.19%,
43.11%, 41.11% and 40.52%, respectively, of its total raw material requirements
by value, with the remainder of such requirements being purchased by it from
suppliers.
The company also own large
parcels of land aggregating to approximately 2,282.42 acres in Paradeep,
Odisha. Its existing manufacturing facility is constructed on approximately 33%
of such land parcel. Accordingly, it is able to further significantly expand
its facilities on the remaining portion of the land parcel. Its captive berth
with 14 meters draft at Paradeep port also has capacity to process additional
unloading as its operations further grow.
The company is the second largest
in terms of phosphatic fertilizer (DAP and NPK complexes) capacity, as of March
31, 2022. In general, operations in the fertilizer industry are capital
intensive due to high costs of land acquisition, construction of manufacturing
facilities and high costs of equipment and machinery. Fertilizers manufacturing
plants with proximity to transportation facilities typically have logistical
benefits. In view of the above, the scale of its facility, proximity to
Paradeep port, access to a network of railways, waterways and highways provides
it with a competitive advantage and an integrated business model
Since the company only
manufacture phosphatic fertilizers, its reliance on subsidies is lower as
compared to manufacturers of urea fertilizers. This reduces the strain on
working capital compared to manufacturers of urea fertilizers as the subsidy
payments are usually disbursed in a delayed manner.
The company integrated business
model has been critical to its success and a differentiating factor from
competitors. Its integrated business model provides it with the ability to
drive profitability, optimize capital efficiency and maintain competitive
advantage.
Weaknesses
The
companys business is dependent on the performance of the agricultural sector in
which fertilizers are used. The performance of the agricultural sector and
consequently the demand for fertilizers and other products is dependent on area
under cultivation, soil quality, climatic conditions including rains and
adequacy of monsoon, adequacy of water supply, crop prices, and availability of
credit to farmers which are beyond control. Further, the demand for fertilizers
is dependent on the cropping pattern which may vary year on year for the major
crops
The
company business is subject to climatic conditions and is cyclical in nature.
Seasonal variations and unfavorable local and global weather patterns may have
an adverse effect on business, results of operations and financial condition
The
fertilizer industry in India is a regulated industry. Any change in Government
policies towards the agriculture sector or a reduction in subsidies and
incentives provided to farmers could adversely affect business and results of
operations.
The
company imports majority of its raw material requirements including rock
phosphate, ammonia, Muriate of Potash (MOP) and part of phosphoric acid for
production of DAP/NPK fertilisers, which exposes it to foreign exchange risks.
The
company intends to acquire the Goa Facility, which has incurred a loss after
tax in each of the past three financial years and the nine months ended
December 31, 2021.
ZACL
is one of the promoters and the promoter of group companies, Mangalore
Chemicals and Fertilizers and ZuariFarmhub which are currently engaged in the
business of manufacture of fertilizers. In addition, OCP is one of promoters
and a majority shareholder of certain of group companies, namely Jorf
fertilizers company IV and Jorf fertilizers company V, which are also currently
engaged in the business of manufacture of fertilizers.
The
import, manufacture, storage, marketing and sale of fertilizers and related
products require several regulatory approvals such as licenses/letters of
authorisation for carrying on the business of selling fertilisers
The
company is subject to laws and government regulations, including in relation to
safety, health and environmental protection
The
fertilizers and related products industry is highly competitive with several
major companies present, and therefore it is challenging to maintain or improve
market share and profitability
Chemical
fertilizers may cause acidification of the soil due to decrease in organic
matter and mineral depletion of the soil, particularly when overuse occurs.
Fertilizer overuse can lead to implications such as soil degradation, nutrient
imbalance, destruction of soil structure, increasing bulk density, as well as
formation, accumulation and concentration of mineral salts of fertilizers which
can lead to compaction layer and soil degradation over the long-term. Such
effects from overuse may adversely impact the fertilizer industry
Post
implementation of nutrient-based subsidy (NBS) for P&K fertilisers, the
price differential between urea and P&K fertilisers has widened which has
adversely impacted demand for P&K fertilisers. The profitability of the
company depends on the movement of international prices of raw material as
majority of the raw materials are imported. The ability of the company to pass
on any increase in raw material prices to end-consumers through revision of
retail prices also plays a crucial role in protecting the profitability of the
company. However, the industry has passed on the impact of change in raw
material prices as well currency fluctuations albeit with a bit of lag. Thus,
at some points the industry may witness erosion of margins for short span of
time in a scenario of rising raw material prices which is corrected after a
lag.
Valuation
For FY 2021, consolidated sales
were up by 23% to Rs 5164.73 crore. OPM fell 50 bps to 10.5% which led to 18%
increase in operating profit to Rs 542.24 crore. Other income decreased 45% to
Rs 19.21 crore while interest cost fell 42% to Rs 111.43 crore and depreciation
decreased 15% to Rs 83.33 crore. PBT increased 59% to Rs 366.7 crore. Tax
expenses were 294% higher at Rs 143.24 crore. Net profit increased 16% to Rs
223.27 crore.
At the higher price band of
Rs 42, the offer is made at around 15 times its EPS of Rs 2.7 for the period
ended March 31, 2021, on a post-issue equity share capital of Rs 814.5 crore of
face value of Rs 10 each. Listed industry peer of the company is Coromandel
International, Chambal Fertilizers &
Chemicals, Deepak Fertilizers & Petrochemicals, Gujarat State Fertilizers
& Chemicals and Mangalore Chemicals & Fertilizers
As of 13May 2022, its
listed peers such as Coromandel International trades at FY2021 P/E of 16.9,
Chambal Fertilizers & Chemicals trades at FY2021 P/E of 9.8, Deepak
Fertilizers & Petrochemicals trades at FY2021 P/E of 12.9, Gujarat State
Fertilizers & Chemicals trades at FY2021 P/E of 12.8 adn Mangalore
Chemicals & Fertilizers trades at FY2021 P/E of 16.6
For FY2021, Paradeep
Phosphates OPM and ROE stood at 10.5% and 12.2%, respectively compared to 14.4%
and 27.4% for Coromandel International, 19.9% and 29.3% for Chambal Fertilizers
& Chemicals, 23.9% and 11.5% for Deepak Fertilizers & Petrochemicals,
9.8% and 5.2% for Gujarat State Fertilizers & Chemicals and 10.9% and 11.6%
for Mangalore Chemicals & Fertilizers respectively.
ParadeepPhosphates: Issue
Highlights
|
Fresh
issue (in Rs crore)
|
1004
|
Offer for
sale (in number of shares)
|
118507493
|
Offer for
sale (in Rs crore)
|
|
- in Upper price band
|
498
|
- in Lower price band
|
462
|
|
|
Price Band
(Rs)
|
39-42
|
For Fresh
Issue Offer size (in no of shares )
|
|
- in Upper price band
|
239047619
|
- in Lower price band
|
257435897
|
Pre issued
capital (Rs crore)
|
575.45
|
Post issue
capital (Rs crore)
|
|
- in Upper price band
|
814.50
|
- in Lower price band
|
832.89
|
Pre issue
promoter shareholding (%)
|
100.00
|
Post issue
Promoter shareholding
|
|
-On higher price band (%)
|
56.10
|
-On lower price band (%)
|
54.86
|
Bid Size
(in No. of shares)
|
350
|
Issue open
date
|
17/5/2022
|
Issue
closed date
|
19/5/2022
|
Listing
|
BSE, NSE
|
Rating
|
44/100
|
Paradeep
Phosphates: Consolidated Financials
|
Particulars
|
1903 (12)
|
2003 (12)
|
2103 (12)
|
2112 (09)
|
Total
Income
|
4357.912
|
4192.87
|
5164.73
|
5959.97
|
OPM (%)
|
10.1
|
11.0
|
10.5
|
9.7
|
Operating
Profits
|
441.54
|
459.75
|
542.24
|
578.72
|
Other
Income
|
39.30
|
34.91
|
19.21
|
13.72
|
PBIDT
|
480.84
|
494.66
|
561.45
|
592.44
|
Interest
|
159.25
|
191.79
|
111.43
|
43.07
|
PBDT
|
321.59
|
302.87
|
450.03
|
549.37
|
Depreciation
|
70.10
|
72.48
|
83.33
|
67.09
|
PBT
|
251.49
|
230.39
|
366.70
|
482.29
|
Share of
Profit/loss of JV
|
-0.09
|
-0.83
|
-0.20
|
0.62
|
PBT Before
EO
|
251.40
|
229.56
|
366.50
|
482.90
|
EO
|
0.00
|
0.00
|
0.00
|
0.00
|
PBT after
EO
|
251.40
|
229.56
|
366.50
|
482.90
|
Provision
for Tax
|
92.43
|
36.34
|
143.24
|
120.12
|
Profit
after Tax
|
158.96
|
193.22
|
223.27
|
362.78
|
PPA
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after PPA
|
158.96
|
193.22
|
223.27
|
362.78
|
MI
|
0.00
|
0.00
|
0.00
|
0.00
|
Net profit
after MI
|
158.96
|
193.22
|
223.27
|
362.78
|
EPS (Rs)*
|
2.0
|
2.4
|
2.7
|
#
|
*EPS
annualized on post issue equity capital of Rs 814.5 crore of face value of Rs
10 .each
|
# Not
annualised due to seasonality of business
|
Figures in
Rs crore
|
Source:
Capitaline Corporate Database
|
|