Fertiliser stocks ride high on subsidy hike: Here're the top gainers

Fertiliser stocks rallied around 11 per cent on the bourses on Thursday, in intra-day trade, after the Centre increased its share of subsidy for di-ammonia phosphate (DAP) by 140 per cent from to Rs 1,200 per bag.

Though the stocks gave up part of the gains as the day closed, the net increase was 5.5 per cent. Analysts say the hike in DAP subsidy will have a positive rub-off on fertiliser and agri-input companies.

The international prices of phosphoric acid and ammonia, key components for DAP, have been rising over the past year. According to data, ammonia prices are up 134 per cent in a year, while phosphoric acid is up about 70 per cent. After being range-bound for most of 2020, the international price of DAP has increased over 50 per cent since September.

This has a significant bearing on the domestic market. According to ICICI Direct Research, “DAP consumption in India is around 10 million tonnes (MT) of which 5 MT is domestically produced.”

Rising cost of inputs and imports have led to higher prices here, raising costs for farmers and working capital needs of companies.

In the last few months, all major fertiliser companies, including the biggest player IFFCO, hiked DAP and other complex fertilisers’ rates. This is the key reason for the gover­nment increasing the subsidy.

The hike would reduce the market price of DAP fertilisers from Rs 2,400 per bag to Rs 1,200 per bag, said analysts at ICICI Direct Research. The move would cost the exchequer around Rs 14,775 crore.

“Reduction in prices would benefit farmers, while there will be increase in the subsidy burden on the companies. Howe­ver, we do not expect it to have a major impact on the balance sheet of fertiliser companies,” the analysts said in a note. Among individual stocks, Nati­onal Fertilizers, Fertilizers & Chemicals Travancore, Rashtr­iya Chemicals & Fertilizers (RCF), Coromandel International, Gujarat State Fertilizers, and Chambal Fertilizers gained in between 2.6 per cent and 5.5 per cent on the BSE on Thursday.

A K Prabhakar, head of research at IDBI Capital, says, “With the government now stepping in, the agrochem stocks are likely to do well.” Prabhakar believes an indirect benefit will accrue to Bayer Crop, Sumi, PI Industries, Dhanuka Agro, and Rallis.

However, G Chokkalingam, founder and CIO at Equinomics Research, is skeptical on the quantum of the benefits for companies.

“While increasing the subsidy amount will benefit farmers, it is not proportionately beneficial for companies, as they may get the payment from the government after a delay due to the pandemic and the overall fiscal situation,” he explains.