Paradeep Phosphates IPO plans to raise Rs. 1502 crore from a fresh issuance of equity shares worth Rs 1,004 crore and an Offer-For-Sale (OFS) component of 11.85 crore equity shares. The OFS is primarily by government of India which will sell up to 11,24,89,000 equity shares and Zuari Maroc Phosphates Pvt Ltd (ZMPPL) offloading a relatively small no. of 60,18,493 equity shares.

Issue OpensTuesday, 17th May, 2022
Issue ClosesThursday, 19th May, 2022
Issue Size  (₹ Cr)₹ 1,466 – 1,502 Cr
Issue Size  (shares)375,943,390 – 357,555,112 
Issue DetailsFresh Issue of Equity Shares upto ₹ 1,004 Cr
 plus Offer for Sale of 118,507,493 Equity Shares
Face Value₹ 10/- Per Share
Bid Lot350 shares
Price Band₹ 39 – 42
Issue Structure : 
QIB50% of offer ( ~178,777,555 Shares, 750.87 Cr)
NIB15% of the offer ( Approx. 56,391,509~ – 53,633,267^ Shares ) (₹ 219.93~ – 225.26^ Cr)
NIB-₹ 2 – ₹ 10 Lakhs Min. 4900 shrs, min appls for 1x = 3648
NIB- Above ₹ 10 Lakhs Min. 24150 shrs, min appls for 1x = 1480 (7400 from min allotment)
Retail35% of the offer (125,144,290 Shares, ₹ 525.61 Cr)
Appl. for 1x Retail~ 3.6 Lacs

Anchor Investors

The anchor investors. include Goldman Sachs, BNP Paribas Arbitrage, Kuber India Fund, Copthall Mauritius Investment and Societe Generale etc. Seven domestic mutual funds — ICICI Prudential MF, Nippon India MF, SBI MF, Tata MF, HDFC MF, DSP MF and Mirae MF have also participated in the anchor book.

About Paradeep Phosphates IPO

  • Paradeep Phosphates Limited (“PPL”) was incorporated on December 24, 1981.
  • In 2002, Zuari Agro Chemicals Ltd (“ZACL”) acquired 74% of the paid-up equity share capital of Company from the Government of India.
  • As a result Zuari Maroc Phosphates Pvt Ltd (“ZMPPL”), Zuari Agro Chemicals Ltd (“ZACL”), OCP, S.A. (“OCP”) and Government of India (“GoI”) are the Promoters of the company.
  • PPL is the 2nd largest private sector manufacturer of non-urea fertilizers in India and 2nd largest in terms of Di-Ammonium Phosphate (“DAP”) volume sales for the 9 months ended December 31, 2021.
  • PPL is primarily engaged in manufacturing, trading, distribution and sales of a variety of complex fertilizers such as DAP, three grades of Nitrogen- Phosphorus-Potassium (“NPK”) (namely NPK-10, NPK-12 and NP-20), Zypmite, Phospho-gypsum and Hydroflorosilicic Acid.
  • Company is also engaged in the trading, distribution and sales of Muriate of Potash , Ammonia, Speciality Plant Nutrients and City compost.
  • PPL’s fertilizers are marketed under brand names in the market ‘Jai Kisaan – Navratna’ and ‘Navratna’.
  • Company’s manufacturing facility is located in Paradeep, Odisha and includes a DAP and NPK production facility, a Sulphuric acid production plant and a Phosphoric acid production plant.
  • The Paradeep plant has 3 operational concentrators to concentrate weak Phosphoric acid into strong Phosphoric acid & facilities to store their raw materials.
  • Accessing the high fertilizer demand markets of Maharashtra and Karnataka, on March 1, 2021, PPL entered into a business transfer agreement with ZACL for the purchase of its fertilizer plant in Goa (the “Goa Facility”).
  • As of March 31, 2022, the total annual capacity of fertilizers at the Goa facility was 1.2 million MT, comprising 0.8 million MT of DAP and NPK and 0.4 million MT of Urea. In addition, the Goa Facility also manufactures 0.23 million MTPA of Ammonia.

Paradeep Phosphates: Financials

Particulars / (₹ In Cr)2021(09)FY21FY20FY19
Revenue from Operations5,959.975,164.734,192.874,357.91
Revenue Growth (%)23.18%-3.79%
EBITDA593.06561.26493.83480.75
Profit before Tax482.9366.5229.56251.4
Net Profit for the period362.78223.27193.22158.96
Net Profit Margin (%)6.09%4.32%4.61%3.65%
Equity Share Capital575.45575.45575.45575.45
Reserves1,613.341,252.061,028.08907.26
Net worth as stated2,188.791,827.511,603.531,482.71
EPS (₹ )6.33.883.362.76
RoNW (%)16.57%12.22%12.05%10.72%
Net Asset Value (₹ )38.0431.7627.8725.77
Post IPO Equity in cr832.89
FV10
IPO Price42
EPS ( FY21)2.68
PE FY2115.67
EPS  annaulized (9m FY22)5.81
PE FY22 ann7.23
Market Cap3498
Market Cap / Sales 1.20

Salient Points

  • PPL is the part of the Adventz Group, as well as OCP. The founding chairman of the Adventz Group was the late Dr. K.K. Birla a and Saroj Kumar Poddar is the current Chairman.
  • The Adventz Group operates in several businesses and has a strong presence in the agribusiness, engineering and infrastructure businesses and emerging lifestyle business.
  • OCP, founded in 1920, with revenues of over US$6.3 billion in 2020, is one of the leading producers of Phosphate rock globally and operates largely in the Morocco and Western Sahara region which has approximately 70% of the global Phosphate rock reserves, and is owned 95% by the Moroccan government.
  • Phosphate rock is processed to produce phosphorous, which along with nitrogen and potassium are the 3 main nutrients most commonly used in fertilizers. (the other 2 are ).
  • India has very low Phosphate reserves and is dependent on imports of basic raw material, phosphate rockor Phosphoric Acid (intermediate raw material) or the finished product DAP.

Financials

Particulars / (₹ In Cr)2021(09)FY21FY20FY19
Revenue from Operations5,959.975,164.734,192.874,357.91
Revenue Growth (%)23.18%-3.79%
EBITDA593.06561.26493.83480.75
Profit before Tax482.9366.5229.56251.4
Net Profit for the period362.78223.27193.22158.96
Net Profit Margin (%)6.09%4.32%4.61%3.65%
Equity Share Capital575.45575.45575.45575.45
Reserves1,613.341,252.061,028.08907.26
Net worth as stated2,188.791,827.511,603.531,482.71
EPS (₹ )6.33.883.362.76
RoNW (%)16.57%12.22%12.05%10.72%
Net Asset Value (₹ )38.0431.7627.8725.77
Post IPO Equity in cr832.89
FV10
IPO Price42
EPS ( FY21)2.68
PE FY2115.67
EPS  annaulized (9m FY22)5.81
PE FY22 ann7.23
Market Cap3498
Market Cap / Sales 1.20

Concerns

  • Sector is highly dependent on monsoon for demand growth
  • The fertilizer industry is highly capital intensive
  • The Goa Facility operates in the Indian fertilizer industry which is highly fragmented and competitive.
  • Dependence on Govt Subsidies.

Assessment: Paradeep Phosphates IPO

  • Paradeep Phosphates Ltd is a part of the Adventz Group, as well as OCP.
  • Adventz Group operates in several businesses and has a strong presence in the agribusiness, engineering and infrastructure businesses.
  • OCP, founded in 1920, with revenues of over US$6.3 billion in 2020, is one of the leading producers of Phosphate rock globally and operates largely in the Morocco and Western Sahara region which has approximately70% of the global Phosphate rock reserves, and is owned 95% by the Moroccan government.
  • With thrust on the agriculture segment by the Government, this company is poised for bright prospects in the future. The issue is too reasonably priced and is worth considering for medium to long term rewards.
  • Paradeep Phosphates Interest cost reduced from Rs. 111 cr in FY21 to Rs. 43 cr in 9MFY 2022.
  • Post the IPO, present net debt to equity ratio which is 0.7x will stand at 0.4x.
  • Paradeep Phosphates 9MFY22 EBITDA/ton of Rs. 5,400 is similar to Chambal Fertilsers.
  • Its peers like Coromandel, Chambal Fertilisers, Mangalore Chemicals trade at 9-16x P/E multiples. If we annualize 9mFY22 performance, it translating into a PE multiple of 7.25x on FY22 basis, which is just OK.
  • With markets in correction mode, one need to trim down expectations of listing gains in Paradeep Phosphates IPO. At present the time may not be suitable for investment in IPOs keeping in view the larger turmoil in the market.
  • Apart from market turmoil, SEBI’s new system for HNIs also seems to have reduced HNI interest in the IPOs and it may be having a impact on the listing [rice as well.
  • With markets falling continuously many available in secondary market making IPOs priced at old rates less attractive.
  • I intend to skip Paradeep Phosphates IPO, though I may a late decision to put in applications in retail considering its long term prospects.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2) Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors. I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.

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