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Deepak Fertilisers Rating Under Review Amid Geopolitical Gas Fears
ICRA has maintained Deepak Fertilisers & Petrochemicals Corporation Limited's (DFPCL) long-term credit rating at AA-, but has placed it on watch due to developing implications. The rating agency also withdrew the short-term rating of A1+.
The primary reason for the watch is the escalating conflict in West Asia. This geopolitical situation has disrupted natural gas supplies and caused prices to spike, posing a significant risk to DFPCL's crucial ammonia production.
Impact on Borrowing Costs and Investor Confidence
A credit rating watch indicates that ICRA is closely examining potential future changes to DFPCL's creditworthiness. Such a watch can influence investor sentiment and affect the cost of future borrowings for the company. Developments regarding gas supply security and project execution are now key factors for assessing DFPCL's financial health and its ability to repay debts.
Growth Projects and Supply Arrangements
DFPCL is pursuing significant growth, with substantial debt-financed capital expenditures underway. Key projects include the expansion of its Technical Ammonium Nitrate (TAN) plant and the construction of a nitric acid plant, aimed at broadening its product portfolio and market presence. The total long-term rated amount stands at ₹2,186.00 crore.
Separately, the company has secured a multi-year contract with Equinor for natural gas, expected to commence in May 2026, which will bolster its ammonia production capacity. DFPCL is also involved in a long-standing legal dispute with GAIL (India) Limited over domestic gas supply terms.
Key Risks and Monitoring Points
Profitability remains susceptible to swings in natural gas and phosphoric acid prices, alongside pricing pressures in the IPA segment. Risks also persist with the timely and budget-friendly completion of its large capital expenditure projects.
Uncertainties exist regarding changes in fertiliser subsidies, payment timelines, and the ongoing legal case with GAIL (India) Limited. Leverage and debt coverage metrics are projected to moderate in FY2026 due to project financing activities. Furthermore, future fertiliser demand could be impacted by the rise of organic farming alternatives.
Industry Landscape
DFPCL operates in a competitive environment, alongside major Indian fertiliser and chemical players like Chambal Fertilisers and Chemicals, Coromandel International, RCF, and GSFC. These companies also contend with similar challenges related to raw material costs, regulatory policies, and market demand.
What to Track Next
ICRA will focus on evolving global gas market dynamics and DFPCL's strategies to resolve the rating watch. Key elements to monitor include the geopolitical stability in West Asia, the security of gas supplies, the timely commencement of the Equinor gas contract in May 2026, and the progress on the TAN and nitric acid projects. The outcome of the legal case with GAIL (India) Limited is also a significant factor.