The sales of fertilizers witnessed a year-on-year decline of 15% in the first half of financial year 2013, according to a recent report by rating agency ICRA. While urea volumes continued to remain relatively steady, a steep decline was witnessed in the sales volumes of fertilizers such as di-ammonium phosphate (DAP), single super phosphate (SSP) and NPK complexes.
The demand was being affected by higher prices on account of lower subsidy for these nutrients, increased cost of raw materials globally and rupee depreciation.
The demand for these fertilizers was further impacted by inventory overhang in the first quarter of financial year 2013 and delayed monsoon. The N:P:K usage ratio is expected to have deteriorated from 6.5:2.9:1 in FY12 to 8.1:3.2:1 in Kharif 2012 (as par Fertilizer Association of India). Nevertheless, the core long-term demand drivers for the industry remain steady despite consumption in the recent past being impacted by price differentials and other factors, the report said.
The government subsidy allocation for FY13 has been insufficient given the stable import volumes as well as high global prices, according to ICRA. The impact of lower subsidy allocation has been reflected in the finances of the industry players as of end-September 2012, with increase in subsidy receivables leading to an increase in working capital / short-term debt levels. This is also expected to result in deterioration in capital structure and higher interest expenses for fertilizer companies in FY2013.