Paradeep Phosphates IPO: All You Need To Know

Paradeep Phosphates Ltd. will launch its Rs 1,501.7-crore initial public offering on Tuesday even amid global volatility on account of the Russia-Ukraine crisis, resurgence of Covid-19 cases in China and tightening of interest rates to stem inflation.

The non-urea fertiliser maker, part of the Adventz Group (KK Birla Group), will issue new stock worth Rs 1,004 crore, according to its red herring prospectus. The Government of India will sell its entire stake through an offer for sale. Subsequently, it will cease to be a promoter on listing of the company.

The OFS consists of 11.85 crore shares valued at Rs 497.70 crore at the upper end of the price band of Rs 39–42 apiece.

Paradeep Phosphates was acquired by a joint venture of Zuari Agro Chemicals Ltd. and OCL as part of a divestment process by the government in 2002.

The company will offer a 43.90% of the post-issue equity in the IPO. Promoter Zuari Maroc, a joint venture of Zuari Group and OCL, will own a 56.10% stake after the share sale.

Issue Details

• Issue opens on: May 17.

• Issue closes on: May 19.

• Price Band: Rs 39–42 apiece.

• Issue size: Rs 1,501.7 crore, including fresh issue of Rs 1,004 crore.

• Face value: Rs 10 apiece.

• Lot size: 357 equity shares and multiples.

• Listing on: BSE and NSE.

• Lead Managers: Axis Capital, ICICI Securities, JM Financials and SBI Capital Markets.

Use Of Proceeds

The company will use Rs 530 crore from the fresh issue to complete acquisition of a Goa facility. It will also repay borrowings worth Rs 300 crore, and the rest will be for general corporate purposes.

Business

Paradeep Phosphates is the second-largest private sector maker of non-urea fertilisers in India. It is also the second-largest manufacturer by di-ammonium phosphate volume sales for the nine months ended December 2021.

The company primarily makes, trades, distributes and sells a variety of complex fertilisers such as DAP, three grades of nitrogen-phosphorus-potassium (namely NPK-10, NPK-12 and NP-20), zypmite (for improving the soil fertility), phosphogypsum (for soil amendment and in bricks and cement industry) and hydrofluorosilicic acid (used in metal sterilisation, electroplating).

It is also engaged in trading, distribution and sale of muriate of potash, ammonia, specialty plant nutrients and city compost.

Its fertilisers are marketed under some of the key brands—‘Jai Kisaan– Navratna’ and ‘Navratna’.

The company imports most of its raw materials. It has a relationship with OCL Group, one of its promoters, for supply of phosphates. OCL is among the leading producers of phosphate rock globally and operates largely in Morocco and Western Sahara region, which has about 70% of the global phosphate rock reserves.

The IPO-bound company has an integrated manufacturing facility located in Paradeep, Odisha. That includes a DAP and NPK production facility, a sulphuric acid production plant and a phosphoric acid production plant. It uses sulphuric and phosphoric acids for making DAP and NPK.

It is in the process of increasing the annual granulation capacity of DAP and NPK production plant to 1.8 million MT from 1.2 million MT, and expects this to be completed by May 2022.

The acquisition of Goa facility will also add 1.2 million MT to its capacity. The Goa plant has NPK capacity of 800,000 MT and 400,000 MT of urea.

Its key markets are Odisha, Uttar Pradesh and Maharashtra, and will expand into Goa and Karnataka.

The company works in the deregulated segment of fertilisers such as NPK. The fertilisers are sold at the point-of-sale to farmers, and the direct benefit transfer or the subsidy is directly transferred to the company based on sales at the PoS. Fertiliser subsidy transfer days have lowered in recent years though there is always a risk of roll-over to the next fiscal based on the government’s finances.

The company is fairly insulated on the raw material front and gas, for which it has long-term contracts with PSU oil and gas companies.

Financials

Paradeep Phosphates’ revenue has grown, aided by demand for fertilisers. Its margin, however, has been under pressure due to a rise in global raw material prices.

Peers

Paradeep Phosphates has a strong position in NPK but competes with group fertiliser companies of Zuari and others. Its main competitors are Coromandel International Ltd., Chambal Fertilisers & Chemicals Ltd., and Deepak Fertilisers & Petrochemicals Ltd.

Risks

• The business is dependent on the performance of the agricultural sector in which fertilisers are used. Any developments affecting the performance of the agricultural sector are likely to affect its business.

• The business is subject to climatic conditions and is cyclical in nature.

• The fertiliser industry in India is regulated. Any change in government policies towards the agriculture sector or a reduction in subsidies and incentives provided to farmers could adversely affect business.

• Unplanned slowdowns or shutdowns in manufacturing facility or underutilisation of manufacturing capacities could have an adverse effect on business, results of operations and financial condition.

• Some of its promoters are involved in ventures that may operate in similar lines of business as the company and certain of its directors are also on the board of directors of, or have interests in, such ventures which are in the same line of business as the company.

• Its inability to expand or effectively manage distribution network may have an adverse effect on business, results of operations and financial condition.

• It is dependent on a limited number of suppliers—largely promoter group companies—to supply key raw materials, and any delay, interruption or reduction in the supply of raw materials to manufacture products may adversely affect business, results of operations and financial condition.