CRISIL has revised the outlook on its rating for the bank facilities of Rama Phosphates (RPL) to 'Negative' from 'Stable', while reaffirming the ratings at 'BBB-/A3'.

The outlook revision follows the decline in RPL's profitability in 2013-14 (refers to financial year, April 1-March 31), and CRISIL's expectation that recovery will be gradual. The company faced significant pressure on sales growth in the year, which has curtailed its pricing flexibility. While the decrease in stock levels at distributor level is expected improve demand in 2014-15, the impact on profitability due to increased competition is expected to remain in the near-term. CRISIL also notes that the sharp decline in cash accruals generated in 2013-14 will imply some strain on liquidity in the near-term.

The company's ratings continue to be driven by its healthy financial risk profile, marked by a low gearing of about 0.4 times and net worth of about Rs. 1.3 billion, expected on March 31, 2014. RPL's capital structure is expected to be lowly levered over the medium term, supported primarily by the healthy net worth, and absence of debt-funded capital expenditure (capex) plans in the near-term.

CRISIL believes that RPL will be impacted by the demand-side pressures in the single super phosphate (SSP) segment, coupled with increasing competition in the sector. The outlook may be revised to 'Stable' if the company achieves sustained increase in profitability, leading to recovery of cash accruals and improvement in liquidity. Conversely, the rating may be downgraded if RPL's profitability declines further, or if the company undertakes debt-funded capex, or if regulatory changes adversely impact its business risk profile.

Shares of the company declined Rs 0.75, or 2.19%, to settle at Rs 33.50. The total volume of shares traded was 7,897 at the BSE (Thursday).