Paradeep Phosphates targets FY29 backward integration to lift fertiliser margins

Investment View and Valuation

Prabhudas Lilladher maintains an ACCUMULATE rating on Paradeep Phosphates following its June 1, 2026 visit update. The broker values the company at 11x FY28E EPS, resulting in a target price of Rs 133 per share. At the report CMP of Rs 124, the stock traded at approximately 10x FY28E EPS.

The investment case is centred on the company's plan to achieve full backward integration by FY29, expand its phosphatic fertiliser market share to more than 20 per cent and improve manufacturing profitability.

Growth Strategy and Manufacturing Expansion

Management said the next growth phase will include a 1mmtpa granulation capacity addition at Paradeep, expansion of phosphoric acid and corresponding sulphuric acid capacity, stronger manufacturing efficiency and the scaling of allied businesses.

The Paradeep facility is considered a key advantage because of its integrated infrastructure and port proximity. A dedicated 3.4 km conveyor handles rock phosphate, sulphur and ammonium sulphate, while pipelines transfer ammonia and phosphoric acid. The DAP and NPK lines are fungible and can switch products within four to five hours, allowing production to respond to market demand.

The existing phosphoric acid expansion from 0.5mmtpa to 0.7mmtpa is expected to be commissioned by March 2027. The proposed 1mmtpa granulation project is currently in engineering and requires capex of Rs 7 billion. An additional 0.3mmtpa phosphoric acid facility, along with equivalent sulphuric acid capacity, is being developed at an estimated capex of about Rs 15 billion.

Expected Profitability Benefits

Management expects backward integration to improve EBITDA per tonne by 35-40 per cent. Integrated manufacturing operations are projected to generate EBITDA of Rs 6,000-7,000 per tonne, compared with around Rs 2,000 per tonne from trading activities.

Raw-Material Inflation and Pricing Response

The principal near-term issue is sharp raw-material inflation. Ammonia prices have risen to around US$850 per tonne from around US$550 per tonne a year earlier, while sulphur prices have increased to around US$950 per tonne from around US$350 per tonne.

Paradeep Phosphates has raised NPK prices by Rs 400-500 per bag and retains a premium of Rs 250-300 per bag over peers. Since NPK fertilisers operate under a free-pricing regime, management believes some costs can be passed through. This differs from DAP and urea, where pricing remains government administered.

An upward revision to the Nutrient Based Subsidy remains an important sector monitor because prevailing rates do not fully offset input-cost inflation.

Inventory, Supply Security and Working Capital

Management stated that most inventory required for Q1 FY27 was procured before the recent cost spike, providing partial near-term protection. The company has raised raw-material inventory days amid geopolitical and supply-chain risks, but expects the incremental working-capital investment to unwind into free cash flow by the end of July 2026.

Sulphur and ammonia sourcing has been diversified beyond the Middle East to China and Russia. A 10-year agreement with OCP Group provides long-term rock-phosphate supply security, with OCP exclusively supplying Paradeep Phosphates in India.

Broker Estimates and Earnings Revisions

Prabhudas Lilladher has incorporated higher raw-material costs and the implemented price increase into its estimates. The broker forecasts FY26-FY28E revenue, EBITDA and PAT CAGR of approximately 15 per cent, 9 per cent and 8 per cent, respectively.

FY27E sales were raised by 18.1 per cent and FY28E sales by 18.7 per cent versus previous estimates. However, FY27E EPS was reduced by 3.8 per cent and FY28E EPS by 5.5 per cent, reflecting the impact of higher input costs despite the implemented price increase.

Key Risks and Monitoring Factors

• Adequacy of Nutrient Based Subsidy support and the pace of any upward revision.
• Sustained elevated ammonia, sulphur and other input costs.
• Geopolitical events and potential disruption to raw-material supplies.
• Execution of the granulation, phosphoric acid and sulphuric acid expansion projects.
• Working-capital intensity arising from higher raw-material inventory days.

Management intends to fund long-term growth primarily through internal cash generation and keep long-term debt below 30 per cent of net worth.