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Paradeep Phosphates IPO

Add to Calendar 2022-05-17 12:00 AM 2022-05-19 12:00 AM Asia/Kolkata Paradeep Phosphates IPO Paradeep Phosphates Ltd. India

Paradeep Phosphates Limited (PPL) is the second largest private sector manufacturer of non-urea fertilizers in India and the second largest private sector manufacturer in terms of Di-Ammonium Phosphate (DAP) volume sales. The company is coming out with an IPO with an issue size of Rs. 1501.73 crores. The company markets their fertilizers under some of the key brand names in the market ‘Jai Kisaan – Navratna’ and ‘Navratna’.

Issue Details

IPO Opening Date: 17 May 2022

IPO Closing Date: 19 May 2022

Minimum Lot: 350 shares

Price Band: Rs. 39 to Rs. 42 per share

Minimum application amount (Cut Off): Rs. 14,700

Objectives

Total Issue size: Rs. 1,501.73 crores

Fresh Issue: Rs. 1004 crores

Part-financing the acquisition of the Goa Facility – Rs. 520 crores.

Repayment/prepayment of borrowings – Rs. 300 crores.

Remaining for general corporate purpose.

Offer for sale: Rs. 497.73 crores

Company overview

Zuari Maroc Phosphates Private Limited (ZMPPL), a joint venture of Zuari Agro Chemicals Limited (ZACL) and OCP Group S.A. (OCP), currently holds 80.45% of the equity share capital of the company, with the balance being held by the Government of India.

PPL 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. Their business are primarily engaged in manufacturing, trading, distribution and sales of a variety of complex fertilizers such as DAP, three grades of Nitrogen-Phosphorus-Potassium (NPK) (namely NPK-10, NPK-12 and NP-20), Zypmite, Phospho-gypsum and Hydroflorosilicic Acid (HFSA). They are also engaged in the trading, distribution and sales of Muriate of Potash (MOP), Ammonia, Speciality Plant Nutrients (SPN) and City compost.

Phosphate rock globally and operates largely in the Morocco and Western Sahara region which has approximately 70% of the global Phosphate rock reserves, which is processed to produce phosphorous, which is one of the three main nutrients along with nitrogen and potassium.

Recently, PPL entered into a business transfer agreement  (BTA) with ZACL for the purchase of the Goa Facility on a slump sale basis, to (i) increasing the size of the company, with a product portfolio comprising both Phosphatic and Nitrogenous fertilizers; and (ii) accessing the markets serviced by, and accessing the products and brand offered by ZACL, on March 1, 2021, for a total consideration equal to the Enterprise Value of INR equivalent of US$ 280.00 million, subject to necessary adjustments. In India, the N-19 fertilizer (19-19-19) is only produced at ZACL's Goa facility from the last five Financial Years (Financial Years 2016 to 2022), which provides a competitive advantage and supports the Goa facility’s leading market position in this particular fertilizer product. The production volume of ZACL’s goa facility for N-19 fertilizer was 69,200 tons in the Financial Year 2021.

Strengths

·         There is an increase in crop facility intensity, increase in per capita food consumption and dietary changes, per capita rise in income and ease of credit availability along with the encouraging government regulations will lead to growth in demand for fertilizers.

·         The business is focused on the non-urea business with an annual million granulation capacity of 1.5 mn MT making it the second largest backward integrated manufacturer in the private sector with Phosphoric acid capacity in India.

·         The primary raw materials include Phosphate Rock, Phosphoric acid, Ammonia, Sulphur and MOP. They produce some of our Phosphoric acid and Sulphuric acid requirements, with the other raw materials being sourced from suppliers.

·         The direct connection between the manufacturing facility and the Paradeep port provides raw materials at relatively low last-mile transportation cost and minimize our logistics costs.

·         We have capacity to store up to 120,000 MT, 65,000 MT, 55,000 MT, 40,000 MT and 35,000 MT of Phosphate Rock, Phosphoric acid, Sulphur, Ammonia and MOP, respectively.

·         PPL has a strong brand name in the eastern India and caters to all types of crop. The company intends to penetrate the western and southern markets and will continue working on a dual brand system.

Financials

PARTICULARS (RS. CRORES)

9MFY22

FY21

FY20

FY19

REVENUE FROM OPERATIONS

5,960

5,165

4,193

4,358

EBITDA

593

561

494

481

PAT

363

367

230

251

EBITDA MARGINS (%)

10

11

12

111

PAT MARGINS (%)

6

7

5

6

CASH FLOW FROM OPERATIONS

135

1,501

1,270

-920

DEBT

2,240

1,251

2,298

2,123

EQUITY

2189

575.45

575.45

575.45

DEBT/EQUITY

1.02

2.173951

3.993396

3.689287

 

Risks

·         The company has only one manufacturing facility until the Goa transaction completes. Any issues with this facility could impact production and business.

·         The business is dependent on limited number of suppliers to supply the key raw materials and any issue in procurement would adversely affect the business working.

·         have only one manufacturing facility until the completion of the Goa Transaction. Unplanned slowdowns or shutdowns in our manufacturing facility or underutilization of our manufacturing capacities could have an adverse effect on our business, results of operations and financial condition.

·         The business has had negative cash flows in the past and may continue to have negative cash flows in the future.

·         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 the business.

Peers

KEY FINANCIALS (FY21)

(RS. CRORES)

OPERATING INCOME

OPBDIT

OPERATING MARGIN (%)

PAT

NET PROFIT MARGIN (%)

CHAMBAL FERTILIZERS &CHEMICALS

12,720

2,460

19.4

1,350

10.6

COROMANDEL INTERNATIONAL

14,160

2,010

14.1

1,310

9.2

DEEPAK FERTILIZERS AND PETROCHEM

1,810

390

21.3

210

11.5

GSFC

7,500

550

7.3

420

5.6

MCFL

2,140

210

9.6

70

3.1

NATIONAL FETILIZERS

11,910

910

7.7

250

2.1

RCF

8,280

730

8.8

370

4.5

PARADEEP PHOSPHATES

5,160

540

10.5

220

4.3

 

Conclusion

Paradeep Phosphates is the second largest private non-urea fertilizer player in India, having a strong foothold in the eastern regions and widely spreading its web in the southern and western regions. Its brands are prominent among farmers aiding the company to deepen its dealer network, in turn leading to deeper market penetration. India has vast arable land with lower crop yield, with land under cultivation declining on account of increased urbanization and industrialization. On the other hand, the consumption and demand for food grains is on rise due to increased population, change of lifestyle and diet. Therefore, demand for fertilizers remains robust and is also supported by increased government subsidy, therefore providing Paradeep with good growth opportunities. However, company has risk of short term margin compression due to raw material hikes and increasing freight costs. Apart from this, the Goa facility is loss making and the turnaround remains a key here. Paradeep also faces high competition risk; with the company having relatively weaker margins with higher debt levels.

Now coming to the valuations, the offer seems to be fair as the issue comes out at a P/E of 5x based on annualized FY22 earnings, which is lowest amongst its peers. Taking the above into consideration, investors with high risk appetite and a long term investment horizon may ‘SUBSCRIBE WITH CAUTION’. Given the current market sentiment, the issue is not expected to yield valuable listing gains and may even trade lower than its issue price. So, short term traders must refrain from applying.

Issue Detail

  • Issue Open: May 17, 2022
  • Issue Close: May 19, 2022
  • Issue Type: Book Build Issue IPO
  • Face Value: Rs. 10 per equity share
  • Price Band: Rs. 39 to Rs. 42 per equity share
  • Bid Lot:350 Shares
  • Minimum Order Quantity:350 Shares
  • Listing At: May 27, 2022
  • Issue Size: Rs. 1,501 crores

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