Balaji Phosphates Ltd. IPO: Key Details

Balaji Phosphates

• Balaji Phosphates is coming out with an initial public offering (IPO) of 71,58,000 equity shares in a price band Rs 66-70 per equity share.
• The issue will open on February 28, 2025 and will close on March 4, 2025.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 6.60 times of its face value on the lower side and 7.00 times on the higher side.
• Book running lead manager to the issue is Arihant Capital Markets.
• Compliance Officer for the issue is Deepika Singh. 

Profile of the company

Balaji Phosphates is engaged in the manufacture and supply of Single Super Phosphate (SSP) in powder and granulated forms, NPK Granulated and Mixed Fertilizers and Zinc Sulphate, all conforming to the standards of Fertilizer Control Order of India. The company sells its products under the brand names of ‘RATNAM’ and ‘BPPL’ to a diverse range of customers, including retailers, wholesalers and state-owned cooperatives with farmers being the end users of the products.

The company’s range of phosphate fertilizers comprising Single Super Phosphate (SSP), zinc sulfate, and NPK Granulated & Mix fertilizers - are used in agricultural soils to enhance plant growth and development. SSP addresses phosphorus deficiencies, especially in acidic soils, promoting robust root development and seedling establishment. Zinc sulfate corrects zinc deficiencies in alkaline and sandy soils, enhancing plant health and crop yield. The company’s NPK fertilizers provide a balanced blend of nitrogen, phosphorus, and potassium for optimal crop growth and improved productivity. In line with the initiatives of the Department of Fertilizers, Government of India, it offers value-added, fortified SSP with zinc and boron to tackle soil deficiencies. Its products cater to farmers in Madhya Pradesh, Chhattisgarh, Maharashtra, Telangana, and Andhra Pradesh, supporting local agricultural growth.

The company’s manufacturing unit is located in Dewas, Madhya Pradesh, spanning around 12,600 square meters. As of March 31, 2024, its unit had installed capacities for manufacture of 1,20,000 MT per annum of Single Super Phosphate, 3,300 MT per annum of Zinc Sulphate and 49,500 MT per annum of NPK Granulated & Mix. 

Proceed is being used for:

• Meeting the capital expenditure requirements
• Meeting the working capital requirements
• General corporate purposes

Industry Overview 

In FY 2023, consumption of fertilizers worldwide is expected to recover by 4% to 192.5 Mt, right above the FY 2019 level of 191.8 Mt. N use is expected to recover by 3% to 109 Mt; and P and K by 5% each to 46 and 37 Mt respectively. Consumption of all three nutrients is forecast to return to or exceed their FY 2019 levels but remain below the record FY 2020 levels. With cereals accounting for over half of global fertilizer use, the smaller demand for mineral nutrients in FY 2021 and FY 2022 partly reflected a contraction of cereal area. Global cereal area contracted by 1.5% in crop marketing year 2022/23, driven by maize (-3.4%). Some of this maize area was switched to other crops such as soybeans, which require lower amounts of nutrients. In crop marketing year 2023/24, global cereal area is expected to recover slightly, led by a rebound in maize.

India is one of the major players in the agriculture sector worldwide and it is the primary source of livelihood for 55% of India’s population. India has the world's largest cattle herd (buffaloes), largest area planted to wheat, rice, and cotton, and is the largest producer of milk, pulses, and spices in the world. It is the second-largest producer of fruit, vegetables, tea, farmed fish, cotton, sugarcane, wheat, rice, cotton, and sugar. The agricultural sector’s success largely depends on the fertilizer industry, which manufactures some of the most important raw materials required for production of crops. Moreover, the Indian fertiliser industry is extremely crucial as it produces phosphorous-based fertilisers such as single superphosphate (SSP), Diammonium phosphate (DAP), Monoammonium phosphate (MAP), nitrogen, phosphorus, and potassium (NPKs) and which aids in the development of healthy crops. To manufacture these fertilisers, the country mainly depends on rock phosphate, which is a common, key raw material and largely sourced from Rajasthan and Madhya Pradesh. Despite this, India imports 90% rock phosphate from other countries.

In India, agriculture is the primary source of livelihood for 55% of the population. At current prices, agriculture and allied sectors account for 18.3% of India's GDP (2022-23). As per First Advance Estimates, the country’s Agriculture and allied activities recorded a growth rate of 3.5-4% in 2021-22. As per the Second Advance Estimates of National Income, the share of GVA of agriculture and allied sectors in the total economy in 2022-23 was 18.3%, with a growth rate of 3.3%. For the year 2022-23, an export target of $23.56 billion has been fixed for the agricultural and processed food products basket and an export of $17.435 billion has already been achieved in eight months of the current fiscal. Between April 2000-September 2023, FDI in agriculture services stood at $4.77 billion. The Indian agricultural sector is expected to increase to $ 30-35 billion by 2025.

Pros and strengths

Long standing in fertilizer trade: The company has extensive experience in the fertilizer industry, with demonstrated manufacturing capability coupled with an ability to carefully choose quality dealers, ensuring its products are well-represented in the market. Additionally, its competitive pricing strategies have been refined over the years, allowing it to meet customer needs while maintaining profitability. The company’s market reputation also grants it to influence over raw material suppliers, enabling it to secure favorable terms and maintain the integrity of its supply chain.

Wide spread network: The company has presence in regions such as Madhya Pradesh, Chhattisgarh, Maharashtra, Andhra Pradesh and Telangana. The company’s longstanding presence in these states reflects its commitment to serve a diverse customer base and its ability to adapt to various regional requirements.

Quality assurance: Having an in-house testing laboratory is a significant advantage for the company as it allows it to maintain quality control over its products. The company’s laboratory is equipped with a range of essential instruments, including electronic analytical balances, pH meters, sieve shakers, muffle furnaces, water distillation plants, and magnetic stirrers, to conduct various physical and chemical tests. This capability enables it to regulate and monitor the quality of its fertilizer mixtures, as well as the accuracy of packing and labeling on its fertilizer bags. The company thoroughly tests both raw materials and finished products to ensure they consistently meet the required quality standards and relevant chemical composition, providing its customers with confidence in the excellence of its products. 

Risks and concerns

Maximum revenue comes from limited customers: The company is dependent on certain key customers for a significant portion of its sales. The loss of any one of its key customers for any reason could have an adverse effect on its business, results of operations and financial condition. While it strives to maintain good relations with its key customers, there is no assurance that its key customers will continue to place similar orders with it in the future. In addition to these external factors, these key customers may also set off any payment obligations, require indemnification for themselves or their affiliates, replace it with its competitors, or replace their existing products with alternative products which it does not supply.

Business is subject to climatic conditions and is cyclical in nature: The company’s business is sensitive to weather conditions such as drought, floods, cyclones and natural disasters, as well as events such as pest infestations. Its results of operations are significantly affected by weather conditions in the agricultural regions in which its products are used. Adverse conditions early in the season, especially drought conditions, can result in significantly lower than normal plantings of crops and therefore lower demand for crop protection products. This can result in its sales in a particular region varying substantially from year to year. Weather conditions can also result in earlier or later plantings and affect the levels of pest infestations, which may affect both the timing and volume of its sales or the product mix. The increasing concern over climate change could also result in enhanced legal and regulatory requirements. In the event that such regulations are enacted and are more aggressive than the sustainability measures that it is currently undertaking, it may experience significant increases in its costs of operations.

Significant working capital requirements: The company’s business demands a significant amount of working capital, with a substantial portion allocated to inventory management and trade receivables. Efficient working capital management is crucial for its operations. If it faces challenges in sourcing the necessary working capital, it could impede its ability to meet client demands promptly or, in some cases, at all. Even if it secures the required funds, it cannot guarantee that they will be adequate to cover its cost estimates, and any unforeseen increase in expenses may impact the pricing of its products. 

Outlook

Balaji Phosphates manufactures and supplies Single Super Phosphate (SSP), NPK Granulated and Mixed Fertilizers, and Zinc Sulphate, all compliant with India's Fertilizer Control Order standards. The product portfolio consists of Phosphate fertilizers like SSP, zinc sulfate, and NPK Mix enhance plant growth in agricultural soils. The company has wide spread network in regions Madhya Pradesh, Chhattisgarh, Maharashtra, Andhra Pradesh and Telangana. On the concern side, the company’s business is subject to climatic conditions and is cyclical in nature. Seasonal variations and unfavourable local and global weather patterns may have an adverse effect on its business, results of operations and financial condition. Moreover, the business is highly seasonal and such seasonality may affect its operating results and cash flow of the company.

The company is coming out with a maiden IPO of 71,58,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 66-70 per equity share. The aggregate size of the offer is around Rs 47.24 crore to Rs 50.11 crore based on lower and upper price band respectively. On performance front, the company’s total income has increased by 4.87% to Rs 15,168.02 lakh in Financial Year ended March 31, 2024, from Rs 14,464.12 lakh in Financial Year ended March 31, 2023, primarily due to an increase in revenue from operations. The company recorded a minor reduction of 0.77% in profit after tax from Rs 608.76 lakh in Financial Year ended March 31, 2023, to Rs 604.05 lakh in Financial Year ended March 31, 2024.

The company’s current operational capacity utilization stands at 58.5%, 73.58%, and 0.06% for SSP, Zinc Sulphate, and NPK mix fertilizer, respectively, highlighting a significant untapped potential within its plant. As part of its ongoing commitment to optimizing resource utilization, the company continuously strives to improve its manufacturing processes. Regular analysis of its existing policies enables it to identify and address bottlenecks in the manufacturing process, improving efficiency and maximizing the use of resources. Historically, the company has demonstrated its ability to increase installed capacity for its products. For example, the company has previously expanded the production capacity for Zinc Sulphate and NPK mix fertilizer in response to growing market demand, ensuring that it remains well-positioned to meet customer needs. This track record of capacity expansion supports its ongoing efforts to enhance efficiency and capitalize on the potential of its operations.