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Experienced management along with operational and financial support within the group
The Blue Deebaj 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. BPL Limited is engaged in the manufacturing of SSP and granular SSP for which the raw material required is Rock Phosphate. TFL uses Rock Phosphate for manufacturing of SSP Granulated Fertilizers and then exports to Brazil in a strategic move thus creating the supply chain mechanism without disrupting the flow by having dependency on outside sources. It helps at the group level to have leverage in sourcing and negotiable capabilities. In addition, TFL operations are supported by Blue Deebaj FZCO owing to operational synergies and financial support by way of corporate guarantees for TFL’s loans and controlling stake in the group is held by same promoters. Acuite, believes the group will leverage and benefit from the operational and financial synergies to strengthen their operations in the near to medium term.
Significant improvement in operating performance of the group
The group reported an operating income of Rs 1354.49 Cr. in FY24 as against Rs 836.72 Cr. in FY23. All these three entities i.e BPL, TFL and Blue Deebaj FZCO has witnessed improvement in the revenue in FY24, the improvement in revenues is expected to continue in FY25 evident as BPL earned a revenue of Rs. 173.58 Cr. in FY24 as against Rs 167.78 Cr. in FY23. TFL earned a revenue of Rs. 578.42 Cr. in FY24 as against Rs 547.37 Cr. in FY23. Blue Deebaj FZCO earned a revenue of Rs 880.34 Cr. (AED 38.68 Cr.) in FY24 as against Rs 477.39 Cr. (AED 23.08 Cr.) in FY23. In 9MFY25, group has achieved the revenue of Rs 1353.01 Cr. and expected to report revenue of Rs 1,700.00 Cr.
TFL has been undertaking regular capex from last two years for increase in product line and improvement in processes. Further, capex is also being carried out in FY25 to set up new fertilizer granulation unit in Kandla Special Economic Zone, Gujarat and purchase of land and building, Plant and Machinery at Jhagadia Gujarat for Single Super Phosphate(SSP) and granulated SSP. The ongoing capex is likely to support improving scale of operations of the group in near to medium term. Acuite believes that the scale of operations of the group will improve in near to medium terms on account of steady demand for fertilizers along with augmenting capabilities.
Healthy financial risk profile
The group’s healthy financial risk profile is marked by healthy networth, comfortable gearing and debt protection metrics. The tangible net worth of the group improved and stood at Rs. 731.14 Cr. as on March 31, 2024 as against Rs. 638.16 Cr. as on March 31, 2023 on account of increase in share capital. Further retention of current year profits and security premium on issuance of share capital contributed to reserves of the group led to increase in the networth. Also, Acuite has considered Rs 44.97 Cr. as quasi equity as the management has undertaken to maintain the amount in the business over the medium term and the same is subordinated to bank loans. The total debt of the group increased and stood Rs. 227.62 Cr. as on March 31, 2024 as against Rs. 202.05 Cr. on as on March 31, 2023. The total debt in FY24 consists of long-term debt (including current portion of long-term debt) of Rs. 42.33 Cr. and short term debt of Rs. 185.30 Cr.
Gearing of the group stood at the same level i.e 0.31 times as on March 31,2024 as against 0.32 times as on March 31, 2023 .Total Outside Liabilities/Tangible Net Worth (TOL/TNW) stood moderate at 0.63 times as on March 31, 2024 as against 0.51 times as on March 31, 2023. The debt protection metrics of the group stood comfortable marked by interest coverage ratio of 3.57 times as on March 31, 2024 and debt service coverage ratio at 2.73 times as on March 31, 2024 as against 5.01 times and 4.05 times as on March 31, 2023 respectively mainly on account of increase in debt level. However, Net Cash Accruals/Total Debt (NCA/TD) stood at same level i.e 0.31 times as on March 31, 2024 as against 0.32 times as on March 31, 2023. Acuité believes that going forward the financial risk profile of the group will remain healthy marked by comfortable gearing and debt protection metrics over the medium term.
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Susceptibility of profitability to volatility in raw material prices in a regulated nature of the fertilizer industry
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 (Nutrient Based Subsidy Scheme) 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.
The profitability margins fallen in FY24 as reflected in the EBITDA margins which stood at 8.30 percent in FY24 as against 11.35 percent in FY23. The PAT margins also reported a decline in FY24 which stood at 3.85 percent as against 5.14 percent in FY23. The dip in profitability margins was primarily on account of increase in finance cost and low realisation of government subsidy, however the subsidy rates are revised and improved in FY25 as compared to FY24 in BPL. Acuité believes that sustained improvement in profitability margins would remain a key rating monitorable.
Working capital intensive nature of operations
The operations of the group remained working capital intensive marked by high GCA days of 250 in FY24 as against 332 days in FY23. The high GCA days are primarily on account of high inventory levels of the group due to the seasonal nature of the industry and purchase in bulk as group has to maintain inventory of ~120 days (Raw Material+Finished Goods quantity) and the same is maintained by way of doing import. The inventory levels stood at 107 days in FY24 as against 166 days in FY23. The group has receivable days of 64 days in FY24 as against 33 days in FY23. 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 in BPL and majority of the billing is done in the last quarter, especially during March 24 in TFL. The creditor days of the group stood at 215 days in FY24 as against 101 days in FY23. The average bank limit utilisation by the group remained moderately utilised with fund-based facilities utilised at ~ 60 per cent and non-fund-based facilities being utilised at ~56 per cent during the last seven months ended in Oct-24. Acuité believes that the working capital operations of the group will remain intensive on the back of high debtor and inventory level over the medium term.
Price and Forex Risk
The group continues to be exposed to forex, price and inventory markdown risks, primarily due to its presence in fertiliser trading. Given its high inventory levels, any adverse revision in NPK rates by the GoI or a decline in imported prices could result in inventory losses. However, the group have, over the years, managed these risks through prudent inventory management and forex risk is naturally hedged as group also imports raw materials. The foreign inflows include exports that accounts for ~62 percent of the revenue and outflows includes raw materials import to the extent of ~65 percent at the group level, thereby creating a natural hedge.
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