Prabhudas Lilladher has maintained an 'Accumulate' rating on Paradeep Phosphates with a target of Rs 148, citing long-term expansion benefits. This follows a challenging second quarter where the company saw profits decline amid high raw material costs and cash flow pressure from subsidy delays.
Brokerage firm Prabhudas Lilladher has kept its 'Accumulate' rating on Paradeep Phosphates, setting a target price of Rs 148 per share. The firm’s outlook is driven by the company’s strategic efforts to increase backward integration and expand its production capacity, which analysts believe could support future growth despite recent operational difficulties.
Financial Performance and Challenges
The company’s performance in the second quarter of the 2027 fiscal year highlights the challenges currently facing the business. While consolidated revenue rose by 7.2% year-on-year to Rs 7,364 crore, profitability faced significant pressure. The company reported a net profit of Rs 122 crore, a 64.1% decline compared to the same period last year. Operating profit, or EBITDA, also fell by 38.3% to Rs 431 crore. These figures reflect a period of margin compression, driven largely by volatile global raw material costs—particularly for sulfur—and a one-time inventory write-down of Rs 60 crore.
Sales volumes remained relatively steady at 1 million tonnes, showing resilience even with monsoon-related demand dips. However, the cost of raw materials and the broader supply-side environment have impacted margins, making cost management a key factor for investors to monitor.
Expansion and Working Capital Risks
The long-term thesis for the stock centers on the company’s plan to improve efficiency through vertical integration. The expansion of phosphoric acid capacity at the Paradeep facility is a major project, with the first phase of increasing capacity from 0.5 million tonnes to 0.7 million tonnes per annum expected to be commissioned by the first quarter of fiscal year 2028. This move aims to secure more of the company's inputs in-house, which could help protect margins in the long run.
However, investors should be aware of the immediate financial risks. The company is currently dealing with high debt levels, which have risen due to working capital pressure. A significant portion of this is tied to subsidy receivables, which totaled Rs 67 billion, as the company waits for the nutrient-based subsidy (NBS) notification for the Rabi season. This reliance on government subsidy disbursements creates cash flow uncertainty, as delays directly impact the company's ability to manage its day-to-day operations and debt obligations.
With the stock recently trading in the range of Rs 133 to Rs 134, market focus will likely remain on how quickly the company can normalize its inventory and recover subsidy payments. The pace of the phosphoric acid project completion will be another critical update for shareholders to track, as it is expected to be a primary driver for improving operational efficiency in the coming years.