Fertiliser stocks gain up to 10% as stagnant urea prices will benefit firms

Shares gain up to 10% as stagnant urea prices will benefit companies

Shares of fertiliser companies gained up to 10 per cent on Thursday, following a three-year extension in the existing urea policy. The share price of Nagarjuna Fertilisers surged the highest, by 10 per cent to Rs 18.45. National Fertilizers gained five per cent to Rs 59.25 and Rashtriya Chemicals and Fertilizers soared 4.1 per cent to Rs 79.80. Scrips of Chambal Fertilisers and Deepak Fertilisers, also moved up by two per cent and 1.7 per cent, respectively.
 
“The upsurge in share price of fertiliser companies can be attributed to the Cabinet’s decision to extend the urea policy by three years, without any increase in prices,” said Himanshu Binani, an analyst with Emkay Global.
 
Reports of ‘no unusual’ indication so far for this year’s monsoon are positives for kharif sowing and user of fertiliser.
 
The Cabinet Committee on Economic Affairs (CCEA), chaired by the Prime Minister Narendra Modi, approved on Wednesday the proposal of the department of fertiliser to continue the urea subsidy scheme up to 2019-20 at a total cost of Rs 1,649 billion and for disbursement of subsidy. The decision implies there will be no increase in the price of urea till 2020.
 
Continuation of the subsidy scheme will ensure timely payment to urea manufacturers. Urea subsidy also includes imported urea subsidy, which is directed towards import to bridge the gap between assessed demand and indigenous production. It also includes freight subsidy for movement of urea across the country.

Compiled by BS Research Bureau | Source: Exchange

“These steps have ensured continued easy availability of urea to the farmers at an affordable price. Today’s decision reiterates the commitment of the present government towards the welfare of the farmers,” CCEA said in a statement on Wednesday.
 
The fund allocated under the extension in the urea policy would be used for clearing subsidies through Direct Benefits Transfer (DBT). “The disbursement of the subsidies mooted through the DBT mechanism will assure the beneficiary (manufacturer in this case) will receive the subsidy. DBT aims to lower the working capital pressure faced by fertiliser companies. The continuation of the urea subsidy scheme will ensure the timely payment of subsidies, resulting in timely availability of urea to farmers,” said Madan Sabnavis, chief economist, CARE Ratings.
 
In 2015, 100 per cent neem-coated urea was made mandatory, which benefited farmers. Neem-coated urea enhances soil health and reduces pest and disease attack. The government controls the maximum retail price of urea at Rs 5,360 per tonne for neem-coating. The government plans to eliminate urea imports by 2022 and become self-sufficient. Ease and continuation in the availability of the subsidies will also help augment domestic urea production. The government has also sanctioned for the revival of five defunct plants, which will also help.