Key headwinds as per rating rationale:
The ratings are, however, constrained by the agro -climatic and regulatory risks in the fertiliser business and the vulnerability of the chemical division’s profitability to the inherent price cyclicality along with the volatility in natural gas prices. The ratings are also constrained by the large debt- funded capex plan being undertaken by the company i.e., the technical ammonium nitrate (TAN) project at Gopalpur with a capital outlay of nearly Rs. 2,200 crore and the nitric acid plant at Dahej with a capital outlay of Rs. 1,950 crore. The large capex plan exposes the company to project execution risks and timely commissioning of hese projects and within the proposed capital outlay will remain a key monitorable going forward.
DFPCL is reorganising its operations under fertiliser and chemicals business separately. On a consolidated basis, ICRA does not expect the reorganisation to have any financial impact, as it will help in streamlining the company’s operations. However, ICRA will continue to monitor the developments on this front.
Further, ICRA also notes the appeal filed by MAL in response to the receipt of assessment and demand orders for the block period (assessment year 2013 2014 to assessment year 2019 -2020) pursuant to the search operation conducted by the income tax department in November 2018, resulting in a demand of Rs. 486 crore (including interest). ICRA will continue to monitor the development on this front.
Large debt – funded capex :The company has recently commissioned its 5,10,000- MTPA ammonia plant at Taloja in August 2023 with a capital outlay of Rs. 4,030 crore till September 2023 and will be incurring another Rs. 470 crore, including purchase of certain stores and spares within FY2024.
As on September 30, 2023, the company had an outstanding external long-
term debt of Rs. 3,175 crore. However, due to the long repayment tenure of the term loans, the annual debt repayments are likely to remain modest (~Rs. 122 crore in H2 FY2024, Rs. 389 crore in FY2025 and ~Rs. 535 crore in FY2026)
Their ultimate customer for TAN was Coal India and if Coal India itself is coming up with such huge capacity it will be very callenging for the Company to sell its TAN from upcoming new plant and Coal India plant is also coming up in Orissa.
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