Fertiliser stocks rally on Rs 10,000-cr subsidy payout

The Fertiliser Ministry sought Rs 20,000 cr from the Finance Ministry to clear the pending dues

Shares of India’s top five fertiliser companies by market capitalisation, including Coromandel International and Chambal Fertilisers, have surged by 19 per cent in the past month on a special banking arrangement of Rs 10,000 crore by the government for the sector.

Industry executives said subsidy dues to the fertiliser industry were Rs 35,000 crore over and above the budgeted Rs 70,000 crore. Of this, Rs 10,000 crore will be wiped off their balance sheets due to the special banking arrangement.

The fertiliser ministry had sought Rs 20,000 crore from the finance ministry under the arrangement for 2016-17. Under the arrangement the government borrows from a consortium of bank to pay fertiliser companies. The differential between the prevailing gilt and the market interest rates is borne by the industry.

In 2015-16, the Centre had approved a similar Rs 7,000 crore arrangement for fertiliser companies. In 2017-18, the Centre budgeted Rs 70,000 crore as the fertiliser subsidy. However, the actual requirement is higher due to unpaid dues. The industry reckons these could be in the range of Rs 35,000 crore.

 

“Every time, the Centre approves a special banking arrangement, share prices spike because the market expects our condition will improve. In reality, there has not been much change in our fundamentals,” said Rakesh Kapur, chairman of the Fertiliser Association of India (FAI). He said urea sales in April-December 2016 were 7.5 per cent lower than in the same period of the previous year, while DAP sales had fallen 7.8 per cent and NPK sales by 5.6 per cent. 

The fall is largely due to stocks with retailers carried forward from a year ago. The fertiliser inventory in the country on April 1 was estimated at 5.5-6 million tonnes against a requirement of 1-1.5 million tonnes. 

Ratings agency ICRA in a research note issued in December said the upside in overall fertiliser sales in 2016-17 was likely to be limited to 2-4 per cent due to high systemic inventory.

“There was no impact of demonetisation on fertiliser sales, which allowed retailers to exhaust their inventory,” an industry executive said.

Anticipation of purchases by retailers is aiding the rally in fertiliser stocks. “The sector expects something positive in the Budget in the form of subsidy payouts,” said K Ravichandran, senior vice-president and head of corporate ratings at ICRA.

New urea projects are also expected to take off, which is adding to the sentiment, although there will not be a big change in fundamentals. 

“Rabi sowing has been good and fertiliser offtake has improved. Some market players feel this could help in improving the working capital requirement of companies,” Ravichandran said.