Rationale

 The rating reaffirmation considers the established position of Rashtriya Chemicals and Fertilizers Limited (RCF or the company) as one of the largest urea manufacturers in India with vertically integrated operations in fertilisers and chemicals, coupled with the healthy operating efficiency of its urea operations, reflected in the high plant utilisation levels. The ratings also factor in the sustained comfortable receivable cycle owing to the timely release of subsidy by the Government of India (GoI) and expectation of the trend continuing. The ratings also factor in the low demand risk for urea and RCF’s parentage with the GoI holding a 75% stake in the company and the exceptional financial flexibility arising out of its strategic importance to the GoI. Further, its large sovereign ownership and ability to access the debt markets at competitive rates supports its liquidity profile. The ratings, however, are constrained by the vulnerability of the fertiliser business to regulatory and agro-climatic risks and the high working capital intensity of the operations. While the subsidy payments in recent years have been timely, inadequate increase in subsidies or delays in payments can have an adverse impact on the company’s financial profile. The profitability of the chemical division is vulnerable to commodity price cycles, exchange rate fluctuations and a potential reduction in import duty. The company has large capex plans in the medium term for modernisation, energy-saving projects and product diversification, which will be funded by debt and internal accruals, exposing the company to project execution risks and may put some pressure on the credit metrics. RCF is also one of the joint venture (JV) partners for the revival of the Talcher unit of Fertiliser Corporation of India (FCI), with the other stakeholders being Coal India Limited and GAIL Limited, apart from FCI. ICRA takes note of the moderation in the company’s financial profile in FY2024 compared to FY2023 owing to the softening in the profit margins in fertilisers and industrial chemicals. The profitability of the fertiliser manufacturing and trading segment was impacted by the revision of the Nutrient-based Subsidy (NBS) rates in October 2023, leading to inventory loss and lower realisations for the complex fertiliser. The trading portfolio was also impacted by high import prices and low subsidy. The Department of Fertilisers has assured RCF of protection of losses in the trading segment, which has shielded the profitability to some extent. Further, the profitability in urea was impacted by low urea import parity price, plant shutdowns and decline in gas prices (lowering the gain from energy savings). In FY2023, the industrial chemical segment reported very high profitability in line with industry trends, which moderated in FY2024, in line with the expectations. The dip in the company’s operating profitability impacted the financial metrics in FY2024. In H1FY2025, revenue increased by 6% YoY supported by strong trading volumes. Further, company’s operating profitability improved driven by healthy profitability in chemicals segment in H1FY2025.