What’s making fertiliser stocks fertile for gains?

by 5paisa Research Team Last Updated: 2022-06-30T10:40:54+05:30

The Indian government has been supportive of the domestic fertiliser industry and raised the subsidy under the nutrient-based subsidy (NBS) scheme two months back. This was to ensure the availability of fertiliser for farmers and keep the production for the industry remunerative.

Moreover, the government has indicated an additional allocation of Rs 1.1 lakh crore to protect the industry and farmers from rising input costs and imported fertiliser prices. This would support the availability of fertiliser to the farmers and also the different local producers.

This is seen as critical as retail sales declined by 3.4% year on year in the FY22. Sales of urea, diammonium phosphate (DAP) and Muriate of Potash (MOP) fell sharply, while sales of nitrogen, phosphorous, and potassium (NPK) fertilisers registered a moderate decline.

In the meantime, international fertiliser prices are expected to remain at elevated levels amid rising geopolitical tensions constraining availability, record high crop prices and elevated energy prices.

From the cost of production side, energy prices have remained firm with natural gas prices rising to record highs. Input prices are also expected to remain elevated in the near to medium term.

The Indian government has indicated additional subsidy allocation, which might be adequate for the full year. The total subsidy, as per the government, is likely to be around Rs 2.15 lakh crore, given the elevated pooled gas prices and firm raw material and finished imported fertiliser prices.

With the sharp increase in nutrient-based subsidy rates, the government has allocated a subsidy of Rs 60,939 crore (phosphorous and potassium sector) for the kharif season against Rs 42,000-crore budgetary allocation for the year ending March 31, 2023.

This is expected to be adequate for the upcoming kharif season, which will keep the credit profile of the P&K players stable.

However, if the input prices remain unyielding, additional support might be required. This support system by the government is providing stability to the sector, according to ratings and research firm ICRA.

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