Paradeep Phosphates Limited IPO
i. Paradeep Phosphates 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.
ii. The company is 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. Company’sfertilizers are marketed under some of the key brand names in the market ‘Jai Kisaan – Navratna’ and ‘Navratna’.
iii. Phosphate rock is processed to produce phosphorous, which is one of the three main nutrients most 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).
iv. The company’s manufacturing facility is located in Paradeep, Odisha and includes a DAP and NPK production facility, a Sulphuric acid production plant and a Phosphoric acid production plant. They utilize Sulphuric and Phosphoric acids for manufacturing DAP and NPK
v. Paradeep Phosphates source their raw materials locally as well as from various other countries such as Morocco, Jordan, Qatar and Saudi Arabia. For several of its raw materials, such as Phosphate Rock, Ammonia and Sulphur, they benefit from long-term supply agreements.
Business Model of Paradeep Phosphates Limited IPO
They make DAP (Di-Ammonium Phosphate) and NPK (Nitrogen-Phosphorus-Potassium). These are fertilisers which are used by farmers to increase the production.
What is DAP ?
DAP is a granulated, high quality, water-soluble, complex mineral fertiliser containing primarily of 18% Ammoniacal Nitrogen by weight and 46% Phosphate by weight. DAP is suitable for all types of soils and can be used as a base fertiliser for all crops. DAP is a dry material used extensively for bulk blending and for direct application
What is NPK ?
NP -20 Fertiliser contains Ammonia, Phosphate and Sulphate in the ratio of 20:20:0:13. NP-20 is suitable for all types of soil. This fertiliser enhances the yield and quality of crops such as oil seeds, pulses, onions, soybean, garlic, sugarcane, paddy and cotton. NP-20 fertiliser is utilised for fertilising the vegetables that require frequent application of fertilisers.
1. The primary raw materials required to make fertilisers include Phosphate Rock, Phosphoric acid, Sulphur, Ammonia and MOP. They source these raw materials locally as well as from various other countries such as Morocco, Jordan, Qatar and Saudi Arabia. For several of the raw materials, such as Phosphate Rock, Ammonia and Sulphur, they benefit from long-term supply agreements.
2. They are mainly into B2C business. That means they are selling fertilisers directly to farmers. Its network includes 4,761 dealers and over 67,150 retailers, catering to over five million farmers in India across 14 states , each as of March 31, 2022.
Industry Analysis of Fertilisers
As per CRISIL report, the demand for fertilizers in India is expected to reach approximately 66 million tonnes by Financial Year 2026 growing at a CAGR of 2.9%-3.1% from Financial Year 2022 to Financial Year 2026.
So, Industry growth is very slow.
Government Polices favouring Fertilisers Companies
1. As per the Nutrient based Subsidy Policy (“NBS Policy”) introduced in Financial Year 2011, the subsidies on Phosphatic fertilizers 155 is fixed at the nutrient level and producers have the freedom to fix retail prices.
2. Moreover, given that Paradeep Phosphate only manufacture Phosphatic fertilizers, their reliance on subsidies is lower as compared to manufacturers of urea fertilizers. Company believes that this reduces the strain on its working capital compared to manufacturers of urea fertilizers as the subsidy payments are usually disbursed in a delayed manner.
3. Under the Fertilizer DBT system, 100% subsidy on various fertilizer grades is released to fertilizer companies on the basis of actual sales made by the retailers to beneficiaries (i.e. farmers). The primary objective of introducing DBT was to increase transparency, reduce leakage of benefits and increase efficiency of social security programs. Further, the subsidized fertilizers are only sold through the “points of sale” devices registered with the Department of Fertilizers, India. (Source: CRISIL Report). Company believe that this enables them to receive subsidies in a more streamlined and timely manner.
a) Well-positioned to capture favourable Indian fertilizer industry dynamics supported by conducive government regulations.
b) The second largest manufacturer of Phosphatic fertilizers in India.
c) Driving raw material efficiency through backward integration of facilities and effective sourcing.
d) Secure and certified manufacturing facility and infrastructure and unutilised land available for expansion.
e) The strategic location of our manufacturing facility and sizeable material storage, handling and port facilities.
f) Established brand name backed by an extensive sales and distribution network.
g) Strong parentage, experienced management team and prominent shareholders.
Objects of the Paradeep Phosphates Limited IPO:
Paradeep Phosphates Limited IPO Details:
|Open Date:||May 17 2022|
|Close Date:||May 19 2022|
|Face Value:||₹ 10 Per Equity Share|
|Issue Type:||Book Built Issue|
|Issue Size:||1,501.73 Cr.|
|Lot Size:||350 Shares|
|Issue Price:||₹ 39-42 Per Equity Share|
|Listing Date:||May 27 2022|
Promoters And Management:
Financials of Paradeep Phosphates Limited IPO:
|Particulars (in crores)||9MFY22||March 21||March 20||March 19|
|Revenue from operations||5959||5164||4192||4357|
|Cost of raw materials consumed||3795||2265||2210||2847|
|Purchase of traded goods||1042||1380||475||839|
|Changes in inventories||-134||225||258||-562|
|Employee benefits expense||100||139||131||130|
|Profit (Loss) before tax||482||366||229||251|
|Profit (Loss) for the period||362||223||193||158|
|Earnings per share||4.46||2.75||2.38||1.95|
Comparison With Peers:
|Name of the Company||EPS (in Rs)||PE||PAT (In Cr.)||Mcap (in crores)|
|Paradeep Phosphates Limited||5.9||7.1||482||3,402|
|Coromandel International Limited||52.08||17||1,528||25,921|
|Chambal Fertilizers Chemicals Limited||42.53||11.5||1,770||17,235|
|Deepak Fertilizers and Petrochemicals Limited||46.8||12.9||512||6,603|
Recommendation on Paradeep Phosphates Limited IPO:
Review and Recommendation of Pradeep Phosphate from InvestorZone team is 4/101. It is the second largest private sector manufacturer of non-urea fertilisers in India and the second largest private sector manufacturer in terms of Di-Ammonium Phosphate (“DAP”) volume sales for the nine months ended December 31, 2021. 2. The business of fertilisers is driven by government regulations because fertiliser is the subsidised commodity. And, lately in the budget government is reducing the subsidy. This can be negative for the company. 3. Currently, world over there is a shortage of fertilisers due to non-availability of raw materials as Russia-Ukraine war is going on. The raw materials are already sky-rocketed and with government polices in place, companies won’t increase the price of fertilisers beyond certain price. 4. Lot of dependency on Government to get subsidy amount. If there is a delay from Government side, company may feel pressure on the working capital. 5. The revenue is growing at 8.57% CAGR from FY19 to FY21. 6. From FY19 to FY21, the PAT has grown from 156 Crores to 223 Crores. A CAGR growth of 20%. This is possible as they have done reduced the other expenses and reduce the finance cost. 7. Company has reduced the debt from 3100 Crores in FY19 to 2240 as on 9MFY22. So, they have reduced the debt quite well over the years. However, still prior to issue, the D/E is greater than 1. 8. It has ROE of 12% and ROCE of 21% based on FY21 numbers. The numbers are looking good. 9. 9MFY22 PAT is 361 Crores and if we annualise it, the PAT for full year comes out to be 481 Crores. And, with ~82 Crores shares outstanding, the P/E would be 7x. The valuation looks comfortable as compared to peers like Coromandel, Chambal and Deepak Fertilisers which are trading at P/E of 17x, 10x, and 13x, respectively.