CRISIL Ratings has reaffirmed its 'CRISIL AA+ / Positive / CRISIL A1+' ratings on the bank facilities and commercial paper programme of Coromandel International Limited (Coromandel).

The ratings continue to reflect Coromandel's robust market position in India's phosphatic-fertilizer market and its strong operating efficiency. Benefited by the backward-integration facilities established over the years, which provides it a competitive advantage against imports, the company has been able to improve its market position to 17.90% in fiscal 2022, from 15.30% previously.

Coromandel has been able to sustain its operating performance especially in the second half of fiscal 2022, despite the industry witnessing a pressure of the rise in raw material prices. To insulate its operating performance from volatility in raw material prices, the company has over the years ensured that a major share of phosphoric acid requirement is produced inhouse. The company has also shown an improvement in the scale of operations of its agrochemicals business.

Additional subsidies announced by the government over the past two fiscals, has enabled the company to attain a debt free position. It has moderate annual capital expenditure (capex) plans of Rs 700-900 crore, to further strengthen the operating efficiency of the fertilizer segment, as well as growth in the agro-chemicals segment. The annual cash accruals of around Rs 1300 - 1500 crore to be adequate to meet the annual capex and incremental working capital requirements, if any.

The government has continued to extend the required financial support to this sector. While initially a subsidy payout of Rs 105,222 crore was budgeted, it has approved an additional payout of Rs. 110,000 crore in May 2022, to account for the unprecedented rise in raw material prices and imported fertiliser rates. This is expected to keep the working capital position steady and not let any material built-up in the subsidy receivables in fiscal 2023. Overall, the company is expected to remain net debt-free over the medium term. Any higher-than-expected debt-funded capex or acquisition or any material increase in subsidy receivables will remain key monitorables.

These strengths are however partially offset by exposure to risks related to regulated nature of the fertilizer industry in India and susceptibility of operating performance to volatility in raw material prices.