Established Market Position
Promoted jointly by the Government of Gujarat (GoG) and Gujarat State Fertilizers and Chemicals Limited (GSFC), Gujarat Narmada Valley Fertilizers and Chemicals Ltd. (GNFC) was incorporated as a public limited company in 1976, with the two promoters cumulatively holding a 41.18% equity stake in it. Subsequently however, the entire shareholding of the GoG was transferred to Gujarat State Investments Limited (GSIL), a GoG undertaking. As of 31st March 2024, the cumulative holdings of the promoters stood at 41.30%. Further, GNFC is one of the largest ammonia and single stream urea manufacturers along with sole/largest manufacturer of key chemicals such as Toluene Di-Isocyanate (TDI) in India with vertically integrated operations in fertilisers and chemicals. It has established position across the country on the back of its strong market presence. Further, trading of few fertilizers and chemicals helps to provide a wider basket of products to farmers. The current directors of the company are Ms. Gauri Kumar, Mr. Pankaj Harishchandra Joshi, Mr. Ranjan Kumar Ghosh, Mr. Bhadresh Vinaychandra Mehta Mr. Narasimhan Ravichandran, Mr. Ajai Bahadur Khare, Mr. Thiruvenkadam Natarajan, Mr. Syed Jawaid Haider and Mr. Kamal Dayani.

Moderation in operating performance during FY2024 with marginal improvement recorded in 9MFY2025
In FY2024, the Indian chemical industry faced headwinds due to inventory destocking, increased supply from China, and subdued export demand, leading to strain on profitability. The Indian fertilizer industry faced challenges due to lower subsidy allocations, and declining international fertilizer and feed stock prices.
The company's operating income declined by ~23.00%, to Rs. 7987.21 Cr. in FY2024, compared to Rs. 10289.31 Cr. in FY2023 and the operating profit margin declined to 7.11% in FY2024 from 18.88% in FY2023.The revenue from fertilizer segment declined due to a reduction in the claimable subsidy for Urea, which was impacted by lower variable costs, a decrease in the subsidy for complex fertilizers, and a lower volume of Neem Urea. This was partially offset by an increase in the volume of complex fertilizers and fertilizer-traded products. Further, the revenue from chemical segment declined mainly due to lower realizations across all products. However, this was partially counterbalanced by higher volumes, particularly in TDI, Aniline, CNA, Formic Acid, Methanol, and Ethyl Acetate. 
However, the revenue marginally increased to Rs. 5837 Cr. in 9MFY25 as compared to Rs. 5820 Cr. in 9MFY2024. Further, the operating profit margin stood at 6.42 % in 9MFY25 as compared to 6.15% in 9MFY24.The improvement in revenue was driven by higher sales volumes, leading to better profitability, while product price realizations in the industrial chemical segment remained subdued. Additionally, timely subsidy payments supported the fertiliser segment, leading to lower inventory levels.
Going ahead, the impact of any sustained moderation in operating performance on the overall financial risk profile and liquidity position in near term will remain a key monitorable.

Conservative capital structure
GNFC’s capital structure continues to be conservative and the company demonstrated strong free cash flow generation, with a strong net worth position supporting the company’s deleveraged capital structure. The tangible net worth of the company declined yet stood strong at Rs. 8,181.19 Cr. as of March 31, 2024, as against Rs. 8987.83 Cr. on March 31, 2023. This reduction is attributed to the buyback of shares amounting to ~ Rs. 802 Cr. and the distribution of dividends amounting to ~Rs. 466 Cr. The Total outside Liabilities/Total Net Worth (TOL/TNW) stood at 0.29 times as on 31st March 2024 as against 0.29 times as on 31st March 2023. The debt protection metrics of the company declined on account of lower absolute operating profits yet stood robust marked by Interest Coverage Ratio of 77.57 times for FY2024 as against 425.81 times for FY2023 and Debt Service coverage ratio at 60.83 times in FY2024 as against 296.06 times in FY2023. Net Cash Accruals to Total Debt (NCA/TD) declined yet stood high at 292.65 times for FY2024 as against 892.99 times for FY2023. The company is also undertaking capital expenditure with a total estimated cost of ~Rs. 2300 Cr, to be funded through internal accruals.
Acuité believes that the company’s financial profile will continue to remain healthy, supported by strong internal accrual generation and no major increase in the company's debt levels despite ongoing capital expenditure.

Working capital intensive nature of operation
The working capital management of the company is intensive in nature marked by increasing Gross Current Assets (GCA) of 153 days as on March 31,2024 as compared to 147 days as on March 31,2023. The high GCA days are primarily on account of high other current assets, mainly comprising of deposits with body corporates, accrued interest and goods and tax receivable.The inventory days increased to 55 days in FY2024 as compared to 49 days in FY2023. The debtor days increased to 29 days in FY2024 as against 13 days in FY2023. Further, the creditor days stood at 40 days in FY2024 as compared to 40 days in FY2023. The average utilisation for non-fund-based limits stood at ~77.46 percent for the last six months ended December 31,2024.
Acuité believes that the working capital operations of the company will remain at similar levels given the nature of the industry over the medium term.

Volatility in raw material prices
Power and fuel are the key cost components for GNFC. Natural gas being an international commodity is subject to price fluctuation. The company is not affected by the price volatility of the natural gas to the extent consumed for Urea as under the Urea pricing formula the cost of natural gas is pass through if the consumption of natural gas is within the permissible norm for manufacturing of Urea. GNFC also deals in purchase of other feed stock materials (i.e. Rock phosphate, and Denatured Ethyl Alcohol) which are imported by the company and used in the manufacturing of Ammonium Nitro Phosphate and Ethyl Acetate which are subject to a price and material availability risk. Raw materials and fuel used for chemicals are subject to price volatility and forex fluctuations to the extent these are imported. However, GNFC has so far been able to pass over the increased cost to the consumers though with a lag.