CRISIL has reaffirmed its AA- and AAA ratings on Chambal Fertilisers and Chemicals Ltd's (Chambal Fertilisers) non-convertible debentures, its FAA rating on fixed deposits and its P1+ rating on the company's enhanced short-term debt. The rating on the Rs550 million non-convertible debenture programme has been withdrawn as the instrument has been fully redeemed.

The ratings reflect Chambal Fertilisers's established position in the urea industry, especially in North India. Its superior operating efficiencies will enable it to capitalise on the sector's healthy business prospects, going forward. The rating also reflects the stable cash flows in the core fertiliser business, given the regulated nature of the domestic urea industry. The company's credit profile is supported by the high financial flexibility that it enjoys as the flagship of the K K Birla Group, evident in its refinancing ability.

The rating is moderated by Chambal Fertilisers's average financial profile. Although its gearing has improved over the years, the company continues to be highly leveraged (an average gearing of 1.3x as at December 31, 2004) in relation to its rating category. After including its deferred tax liability in its net worth, its average gearing was 0.9x as at December 31, 2004. It has large repayment liabilities of over Rs2.0 to Rs2.2 billion per annum till financial year 2006-07, which stress its debt coverage ratios. CRISIL expects Chambal Fertilisers to correct these ratios in the medium to long term. The current rating does not factor in any significant investments or capital expenditure by the company.

Chambal Fertilisers also trades in other fertilisers and agri inputs. It has business interests in software, textiles (synthetic and blended yarn) and food processing. For the nine months ended December 2004, It reported net sales of Rs 21.7billion (Rs 17.7 billion) and a net profit of Rs1.8 billion (Rs 1.2 billion). In 2003-04, the company reported a net profit of Rs1.2 billion on net sales of Rs22.2 billion with urea accounting for 79 per cent of its sales, fertiliser and agri-input trading 15 per cent, and yarn sales 6 per cent.

Chambal Fertilisers proposes to merge India Steamship Company Ltd (India Steamship) with itself with retrospective effect (subject to approval) from September 1, 2004. The merger will be subject to the required approvals. India Steamship is a part of the K K Birla group and operates three crude tankers, one panamax and two aframax vessels. For the nine months ended December 2004, India Steamship reported net sales of Rs715.7 million (Rs529.2 million) and a net profit of Rs118.7 million (Rs77.8 million). In FY04, the company reported a net profit of Rs96.9 million on net sales of Rs696.8 million.

Outlook: Chambal Fertilisers's strong business profile and stable cash accruals support its ratings at the current level.