Near-term challenges for fertiliser sector remain: ICRA

Even as the demand outlook for the fertiliser industry is positive for FY15, the sector continues to face challenges in the near future, especially on the gas price hike issue, says a ICRA Research report released today.

"While the demand outlook for the industry appears better for FY15, the industry continues to face significant challenges and uncertainties in the near future, in particular the gas price hike," the research arm of rating agency ICRA said in a report here.

A sluggish recovery is in the offing for the fertiliser industry in FY15, it said.

ICRA Research estimates a relatively moderate overall volume growth in FY15 with imports of non-urea fertilisers expected to grow by 15-20% in the next fiscal, although overall volumes may not cross FY13 levels.

The report said FY14 was a year of transition for the key industry as well as for all the stakeholders, particularly in the non-urea segment.

While urea sale volumes continued to grow at a stable long-term average of 3%, non-urea fertilisers witnessed significant volume decline, although retail sales may not have been impacted considering the healthy monsoons in kharif 2013, it said.

With significant amount of channel inventory having got cleared, partly due to liquidity pressures facing the industry, the demand outlook for FY15 appears better.

"The recent amendments cleared by Cabinet Committee on Economic Affairs in the New Urea Investment Policy-2012 by removing the word guaranteed buyback for new projects will increase marketing risks as companies will need to ensure optimum capacity utilisation for setting up such highly capital intensive projects.

"It will lead to the industry being hesitant to invest in these projects in the absence of visibility of lower cost of domestic gas," ICRA Senior Vice-President K Ravichandran noted.