Rationale
The assigned ratings
factor in the established presence of Rama Phosphates Limited (‘RPL') as a
manufacturer of single super phosphate across the states of Maharashtra, Madhya
Pradesh, Rajasthan, Karnataka, Gujarat, Uttar Pradesh and Haryana. ICRA notes
that its three manufacturing plants, stationed across Madhya Pradesh,
Maharashtra and Rajasthan, provide good access to vast end-user markets. The
ratings favourably consider the extensive experience of the promoters with more
than five decades in the fertiliser and chemicals business. The ratings also
take into account the diversified product portfolio of phosphate fertilisers, sulphuric
acid and soya-based products as well as its highly integrated operational
structure, which enables cost competitiveness. The ratings further take into
consideration the comfortable capital structure as well as adequate debt
coverage indicators led by healthy cash accretion and net worth, along with
modest debt levels due to absence of longterm debt. ICRA notes that the company
has undertaken capex of ~Rs. 35 crore in FY2021, which was commissioned in
February 2021, primarily for expanding its sulphuric acid manufacturing
facilities and setting up LABSA and phospho gypsum plants. The capex was funded
entirely through internal accruals, and as part of the company's backward and
forward integration plans, it is expected to improve the top line as well as
reduce manufacturing costs. The ratings, however, remain constrained by RPL's
modest profitability margins led by low value addition involved in its soya
business; nevertheless, the profitability in its fertilisers and chemicals
segments remains healthy. ICRA also notes the vulnerability of the company's
scale of operations and profitability to agro-climatic conditions and vagaries
in crop cultivation. Further, the company's operations also remain vulnerable
to adverse fluctuations in raw material prices for production of single super
phosphates (SSP) and foreign exchange (forex) rates. The ratings further
consider that being in the fertilisers business, the company's operations
remain exposed to regulatory risk. The Stable outlook on the [ICRA]BBB+ rating
reflects ICRA's opinion that RPL will continue to benefit from the extensive
experience of its promoters in the fertilisers and chemicals sectors.
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