Fertiliser shares rally in weak market; MFL, NFL, RCF surge up to 18%

Shares of fertilisers companies zoomed up to 18 per cent on the BSE in Thursday's intra-day trade amid heavy volumes on expectations of additional fertiliser subsidies. In comparison, the S&P BSE Sensex was down 0.76 per cent at 61,199 at 12:49 PM.

According to media reports, Russia will impose an export duty of 23.5 per cent on all types of fertilizer with a "cut-off price" set at $450/tonne. The duty will come into force from 1 January 2023, according to local Russian media.

Following the news, Madras Fertilizers (MFL) surged 18 per cent to Rs 72.80 on the back of four-fold jump in trading volumes. Fertilizers & Chemicals Travancore (FACT) rallied 11 per cent to Rs 206, followed by National Fertilizers (NFL) (10 per cent to Rs 68.35), Mangalore Chemicals & Fertilizers (10 per cent at Rs 90.80), Khaitan Chemicals & Fertilizers (9 per cent at Rs 81.50) and Rashtriya Chemicals & Fertilizers (8 per cent at Rs 142.45).

In the past one month, the market prices of RCF, MFL, FACT and NFL have surged in the range of 38 per cent to 60 per cent on the BSE. In comparison, the S&P BSE Sensex was up less than 1 per cent during the period.

According to Himanshu Binani, research analyst at Prabhudas Lilladher, believes that majority of the fertiliser exports by Russia is largely consumed by European region. However, it would obviously have a trickle down impact on India as well. The cost of imports is likely to go up by $70/tonne.

"However, we understand that the recent Government announcement on reduction in fertiliser subsidy for H2FY23 doesn't get changed\ as the government. has already closed their book for FY23 (in terms of subsidy allocation). While, we are of the view that the subsidy for Next year (FY24) is likely to remain elevated," the brokerage firm said in a sector update.

Earlier on December 10, Business Standard reported that the finance ministry has sought the Parliament's approval for additional gross spending of Rs 4.36 trillion in financial year 2022-23 (FY23) through the first tranche of supplementary demands for grants.

Of the total Rs 1.09 trillion sought for fertiliser subsidy, Rs 23,122 crore has been allocated for P&K (phosphatic and potassic) and Rs 86,167 crore for urea. This is over and above the Budget allocation of Rs 1.05 trillion for fertiliser subsidy.

The additional allocation is meant to help insulate the farmers from the impact of a steep increase in the cost of fertilisers due to a sharp rise in international prices of fertilisers and raw materials, the newspaper reported. CLICK HERE FOR FULL REPORT

Allocation in FY23 falls short of requirement although the government's track record of making additional allocations during the year provides comfort. Industry's business profile is expected to remain stable in with the Centre taking timely steps to support the industry. The outlook for FY23 is enhanced by subsidy support from the government," RCF had said in its FY22 annual report.

Analyst expect the domestic industry to stock up imported fertilisers in Q3 for DAP, NPK and MOP to some extend for the next kharif season (as majority of Rabi consumption would be done by January'23.

Going forward, one can again expect the fertiliser prices to inch up in global markets. As long as the crop prices holds up both in global as well as domestic market the industry would be in a position to pass this on to the farmers, analysts said.