Chambal Fertilizer - The largest player in the urea industry in India
Chambal Fertilizers - Company overview & Urea industry synopsis in India
Twitter Handle: @shuchi_nahar
Company Overview
Incorporated
in 1985 and based in Kota, Rajasthan, Chambal has the largest installed urea
capacity of 3.00 million tonnes in the private sector in India. Chambal is the
largest private player in the urea industry in India in terms of production
capacity. Its share in the total domestic urea production has increased to
13.4%, driven by the ramp-up of its Gadepan-III plant. The company has maintained
its share in the non-urea fertilizers segment.
The company has sold 0.93 million tonnes of DAP/muriate of potash/nitrogen phosphorus
potassium during the first 9 months of fiscal 2022, down from 1.60 million
tonnes in the corresponding period of the previous fiscal because of the global
shortage of the fertilizers amidst the Russia-Ukraine war. Its significant
market share in north India is supported by its strong Uttam Vir brand and
robust distribution network. The company also trades in complex fertilizers and
pesticides. The urea plants are near the Hazira-Bijapur-Jagdishpur gas
pipeline, which ensures sufficient gas availability.
Revenue
trend past 5 years
Urea growth potential
The
consumption of Urea is the highest among all the fertilizers used in India. Urea
is the most important crop nutrient which plays a vital role in ensuring food
security in the country. The Urea industry comprises manufacturers from the public, co-operative and private sectors. The Urea manufactured in the country
is not sufficient to meet its total demand. Hence, part of the demand for Urea
is met through imports.
Other
Products
The Company strives to provide all agri-inputs
under one roof to farmers. Apart from manufacturing Urea, the Company markets
other fertilizers and agri-inputs such as Di- Ammonium Phosphate (DAP), Muriate
of Potash (MOP), and Ammonium Phosphate Sulphate (APS), different grades of NPK fertilizers,
Sulphur, micro-nutrients, and agrochemicals.The company has an established market position and superior operating efficiency of its
fertilizer plants. Operating performance remains comfortable, with plants
operating at over 100% utilization and within the prescribed energy norms. The profitability of the urea division will remain immune to the rise in feedstock
(natural gas) prices as this is compensated through subsidy receipts from the
government. The global shortage of complex fertilizers, which has led to a
spike in their prices, could affect profitability in the medium term.
Profit
margin growth trend
Government
subsidies to boost the growth
DAP,
MOP, APS and NPK fertilizers are covered under the Nutrient Based Subsidy
(“NBS”) policy of the Government of India. The subsidy on these products is
paid by the Government of India to the Company based on the different nutrients
in these fertilizers and the Company determines the sale prices of these
products as per NBS. In view of this, the prices of these products are guided
by market forces. DAP, APS, and NPK fertilizers are manufactured in the
country as well as imported by various players.
While
there has been an unprecedented rise in raw material prices (especially pooled
gas prices) and imported fertilizer rates, the additional subsidies (Rs 60,593
crore added to the initial budget of Rs 79,530 crore) announced by the
government should restrict the increase in subsidy arrears for this fiscal. A
similar addition in the subsidy budget is expected for fiscal 2023, to compensate
for the rise in raw material and imported fertilizer prices. Timely
announcement and disbursement of the additional subsidies remain key rating
sensitivity factors.
High
dependence on imports
MOP
is not produced in India and the country is fully dependent on imports. The
Company imports these fertilizers from international manufacturers and
producers and sells them in its marketing territory under its brands.
The
production and imports of these products vary due to factors such as demand,
pipeline inventories, pricing of the products in the international market, cost
of raw material, etc. Sulphur and micronutrients are purchased from
manufacturers in India and imported from international manufacturers. In the case
of agrochemicals, the technical grade agrochemicals are produced by
multinational companies as well as domestic producers.
Chambal
sold 2.62 million tonnes of urea and 0.93 million tonnes of DAP/muriate of
potash/nitrogen phosphorus potassium during the first nine months of fiscal
2022 (2.73 million tonnes and 1.60 million tonnes, respectively, in the
corresponding period of the previous fiscal). While the uneven distribution of
rainfall caused a marginal decline in urea sales, the global shortage of
complex fertilizers impacted sales volume in the domestic market.
Points
to concern
Further,
the Urea manufactured by the Company is preferred by the customers in its
marketing territory due to its good product quality and strong brand image of the
Company. Hence, the Company does not foresee much impact on its business due to
the capacity addition by new players in the Urea sector. The demand variation due
to changes in monsoon pattern, volatility in the prices of DAP, MOP, APS, and NPK
fertilizers, and variation in the foreign exchange rates are a few challenges
that the Company faces in its business related to non-Urea fertilizers. The
Company continuously evaluates these factors and strives to mitigate them
through dynamic sourcing and pricing of the products and appropriate hedging of
foreign exchange risk.
Roadmap
ahead
The
recent rise in feedstock (natural gas) prices will not impact the operating
profitability of the urea production division as it is passed through entirely,
to be compensated through subsidy receipts from the government. For
Profitability against production above-reassessed capacity, wherein the incentive
is capped at import parity price of urea plus incidental charges, to also not
be majorly impacted on considering that the imported urea prices are also high.
However, the global shortage of complex fertilizers, which has led to a spike
in prices, may have a mid-term impact on overall profitability.
Gadepan-III
plant has enabled the Company to increase its market share in Urea and thus
enhanced its competitive strength due to more efficient operations on account
of economies of scale. After the commissioning of the Gadepan-III plant, the Company
has started focusing on strengthening its reach in existing marketing
territories and expanding in new geographies in the eastern, western, and southern
parts of India through a concerted brand-building approach.
A
few more plants are expected to be operational to increase the indigenous
supply of Urea during the next 1-2 years which shall reduce the demand-supply gap
in the country. However, these plants are in eastern and southern parts of India
whereas the core marketing territory of the Company is the Northern and Central
parts of India.
The Company has an established brand and sizeable market share in the DAP and MOP fertilizers and making inroads in the NPK fertilizers space. The Company plans to replicate its success in the existing marketing territory in new marketing territories and increase its reach in the existing marketing territories which offers an opportunity for the Company to enhance its sales volumes and market share.
Shareholding Pattern
Twitter Handle: @shuchi_nahar
Disclaimer: The information provided on Shuchi Nahar’s Weekend Blog is for educational purposes only. I am not SEBI Registered please ask your investment advisor before taking any actions. The articles may contain external links, references, and a compilation of various publicly available articles. Hence all the authors are given due credit for the same. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purpose only.
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