Healthy profitability, limited debt amidst predictable policy regime to keep credit profile stable

India’s complex fertiliser manufacturing sector will add around 4 million tonne per annum (MTPA) of capacity through fiscal 2029, over the current base of ~16 MTPA, as capacity utilisation has shot up due to negligible capacity addition in the past seven years amid steadily rising demand. The additional capacity is expected to keep the country’s import dependency in check.

Despite the capital expenditure (capex), the credit profiles of manufacturers will remain comfortable, supported by healthy profitability amidst improving backward integration and, consequently, limited reliance on debt. The government’s track record of timely subsidy disbursements also supports the working capital cycle of players.

Our analysis of complex fertiliser manufacturers accounting for around 80 per cent of the domestic manufacturing capacity indicates as much.

Complex fertilisers, accounting for a third of the overall domestic fertiliser consumption, provide balanced soil nutrition. Around one-third of India’s complex fertiliser requirement is met via imports — mainly di-ammonium phosphate (DAP), while nitrogen phosphorous potassium (NPK) remains largely indigenously produced. The share of NPK grades in overall complex fertilisers increased to ~60 per cent in fiscal 2025, compared with 53 per cent on average in previous five fiscals, on account of prioritisation of NPK production by domestic manufacturers due to better cost economics.

Says Anand Kulkarni, Director, Crisil Ratings, “Healthy demand and limited capacity growth led to capacity utilisation reaching ~95 per cent this fiscal. Indeed, complex fertilisers have seen only ~0.5 MTPA capacity added over the last seven years. The planned capacity addition will not only provide growth avenue but also help in keeping import dependency at 30-32 per cent, which otherwise would have increased by 10-11 per cent by fiscal 20293.”

The new capacities will have minimal offtake risk given the high import dependency. Besides, the execution risks are mitigated by the brownfield nature of the projects.

Additionally, the industry will add sulphuric and phosphoric acid capacities, which are key intermediaries for complex fertilisers. This is expected to improve backward integration to ~60 per cent in fiscal 2029 from ~50 per cent in fiscal 2025. Such integrated capacities will lead to stable profitability given the inherent higher volatility in prices of intermediaries compared with raw materials, while also reducing import dependency for these intermediaries.

Says Nitin Bansal, Associate Director, Crisil Ratings, “Manufacturers of complex fertilisers are expected to invest Rs 12,000–13,000 crore over the next three fiscals, significantly higher over capex incurred in fiscals 2025 and 2026. A large part of the planned capex is likely to be funded out of healthy accrual from existing capacities, leading to low reliance on external debt. The above factors will keep the leverage — defined in terms of gross debt to earnings before interest, taxes, depreciation and amortisation (EBIDTA) ratio — largely stable at 2.0–2.2 times over the next two fiscals.”

Adequacy of nutrient based subsidy rates and timely release of subsidy will, however, remain monitorable. We expect timely and adequate subsidy allocation to continue, as seen with additional subsidy allocation of ~22 per cent compared with initial budgetary estimates of Rs 49,000 crore in fiscal 2026.