Agri stocks in focus; Atul, Deepak Fertilisers, Godrej Agrovet up over 5%

Chambal Fertilisers & Chemicals, RCF, Zuari Agro Chemicals and National Fertilizers were up more than 3 per cent on the BSE in an otherwise weak market.

Shares of agri inputs, including fertilizers companies, were in focus today and rallied by up to 17 per cent on the BSE on Monday amid expectations of strong earnings growth going forward. That apart, media reports have also suggested that the government could propose to cut import duty on raw material for fertilizer companies in the forthcoming Budget 2020.

Atul, Godrej Agrovet, Deepak Fertilizers & Petrochemicals Corporation, Chambal Fertilisers & Chemicals, Rashtriya Chemicals & Fertilizers (RCF), Zuari Agro Chemicals and National Fertilizers were up more than 3 per cent each on the BSE. In comparison, the S&P BSE Sensex was down 1 per cent at 41,199 points at 03:12 pm.

"Given the fiscal constraints, we do not expect the budgetary support for fertiliser subsidy, in FY21, to be materially different from FY20 levels. With the decline in the international price of raw materials and fertilisers, we expect the government to rationalise the Nutrient Based Subsidy (NBS) rates for phosphatic fertilisers," ratings agency ICRA wrote in a pre-budget note.

The agency expects the Centre to outline further steps on the road ahead for the implementation of the next phase of Direct Benefit Transfer (DBT) and integration with various schemes like Soil Health Card (SHC) scheme etc. 

"ICRA expects GoI to continue its focus on improving farmer income through various schemes promoting irrigation, income supplementation, crop insurance and ensuring adequate flow of farm credit," it added.

Meanwhile, analyst at Emkay Global Financial Services expect agri-input companies to deliver robust revenue growth in the October-December quarter (Q3FY20) on higher Rabi sowing, higher water availability in the wake of good rainfall, and a low base from last year.

“The underlying macros for the Indian fertilizer industry looks promising with the sharp recovery in the southwest monsoons, which has resulted in higher reservoir levels as compared with the previous year (filled up to 89 per cent of capacity). The crop sowing, too, has picked up and on the subsidy front, DBT claims generation process has also now fully stabilized,” CARE Ratings said in a sector update.

We expect production to continue increasing on the back of restocking activities undertaken by fertilizer manufacturers. Softening of raw material prices is also to aid in spurring production. Decontrolled fertilizer production and usage is also to increase on the back of the introduction of the second phase of DBT and the government’s thrust on improving balanced nutrition, it added.