| Experienced management along with operational and financial support
The group is promoted by Dhanani family, who have over five decades of experience in the field of fertilizers, chemicals, packaging and mineral based industries. Their experience and funding support would remain instrumental in aiding the business and the liquidity profile of the group over the medium term. In addition, TFPL operations are supported by Blue Deebaj FZCO (major shareholder in TFPL) owing to operational synergies and financial support by way of corporate guarantees for TFPL’s loans.
Improvement in profitability despite moderation in operating income
The profitability of the group witnessed improvement despite witnessing moderation in revenues. The group reported an operating income of Rs. 841.08 crore in FY23 as against Rs. 998.70 crore in FY22. BPL and TFPL witnessed improvement in the revenue in FY23, however Blue Deebaj FZCO witnessed a decline in FY23. In FY23, Blue Phosphate Limited earned a revenue of Rs. 167.78 crore in FY23 as against Rs. 102.91 crore in FY22. The company earned majority of its revenue from manufacturing which constituted to around 35% of the total revenue of the company, trading contributes to 34.39%, subsidy contributes to 30.58% and the remaining is contributed by miscellaneous income for FY23. The company receives 30% subsidy for SSP and 30-35% for DAP. In FY23, Transworld Furtichem earned revenue of Rs. 547.39 crore in FY23 as against Rs. 482.94 crore in FY22. The company earned majority of its revenue from manufacturing which constituted to around 69.73% of the total revenue of the company, trading contributes to 28.69%, subsidy contributes to 1.30% and the remaining is contributed by miscellaneous income for FY23.
However despite moderation in in the operating income of the group, the profitability margins witnessed a growth in FY23 as reflected in the EBITDA margins which stood at 13.07% in FY23 as against 10.90% in FY22. The PAT margins also witnessed a growth in FY23 to 8.57% as against 7.97% in FY22. The growth in profitability margins was primarily on account of high demand, better pricing power and variable cost reduction through operational efficiencies in production processes.
Healthy financial risk profile
The group’s healthy financial risk profile is marked by healthy networth, comfortable gearing and strong debt protection metrics. The tangible net worth of the group improved and stood at Rs. 742.82 crore in FY23 a against Rs. 700.15 crore in FY22. The total debt of the company increased and stood Rs. 205.82 crore in FY23 as against Rs. 181.41 crore in FY22. The total debt in FY23 consists of long term debt of Rs. 43.68 crore, short term debt of Rs. 149.83 crore in FY23 and USL of Rs. 12.30 crore. This unsecured loan is majorly for Blue Phosphate Limited from its group company Sana Hospitality Services Private Limited at interest of 9%. The TOL/TNW improved and stood at 0.47 times in FY23 as against 0.59 times in FY22. The debt protection metrics improved further with debt service coverage ratio of 5.64 times in FY23 as against 4.88 times in FY22. The interest coverage ratio also improved and stood at 6.73 times in FY23 as against 6.70 times in FY22. The promoters of TFPL have infused equity to the tune of Rs. 20 crore in FY24 to boost the operations of the company.
Acuité believes that going forward the financial risk profile of the group will remain healthy over the medium term, in absence of any major debt funded capex plans
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| Working capital intensive nature of operations
Working capital intensive in nature with elongated receivable days The operations of the company are working capital intensive in nature marked by high GCA days of 340 days in FY23 as against 301 days for FY22. The high GCA days is majorly on account of high inventory levels of the company due to the seasonal nature of the industry. The inventory levels stood at 169 days in FY23 as against 128 days in FY22. The company has high receivable days of 174 days in FY23 as against 166 days in FY22. The receivable period is high as a certain percent of the price of fertilizers is received as subsidy from the government after raising the bill. The credit terms of the group depends on the crop cycle of the particular region. The creditor days of the company stood at 228 days in FY23 as against 682 days inFY22. The average bank limit utilisation by the company remained moderately utilised with fund-based facilities utilised at 66.35% and non-fund based facilities being utilised at 21.66%.
Acuité believes that the working capital operations of the group will remain at same levels as evident from the high debtor and inventory level over the medium term.
Exposure to regulated nature of the fertilizer industry and volatility in raw material prices
The fertilizer industry is strategic, but highly controlled, with fertilizer subsidy being an important component of profitability. The phosphatic-fertilizer industry was brought under the NBS regime from April 1, 2010. Under this scheme, the Government of India fixes the subsidy payable on nutrients for the entire fiscal (with an option to review this every six months), while retail prices are market-driven. Manufacturers of phosphatic fertilizers are dependent on imports for their key raw materials such as rock phosphate and phosphoric acid. The regulated nature of the industry and susceptibility of complex fertilizer players to raw material price volatility under the NBS regime continues to be key rating sensitivity factors. Fertilizer companies are also exposed to subsidy payments from the government, which may get delayed leading to reliance on short-term working capital borrowings.
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