Urea makers stare at delayed subsidies, gas trouble: Crisil

Urea makers will continue to face working capital pains in the next fiscal amid uncertainty over the next budget subsidy under a new government following the general elections, rating agency Crisil said in its report.
Fertiliser makers are looking at another year of delayed subsidy payments, which will increase pressure on their credit profiles.
While the introduction of nutrient-based subsidy in complex fertilisers and a decline in the import parity price of urea have helped the government contain the overall subsidy bill, fiscal constraints have meant repeated under-budgeting of subsidy leading to delayed payments, the report said.
This has particularly impacted urea manufacturers and compelled them to seek more working capital loans, which has increased their interest cost burden.

"Even though payments by the government are a certainty and it supports manufacturers through special banking arrangements, where it bears most of the interest cost, the stress due to delay is expected to continue into the next fiscal," Crisil senior director Sudip Sural said in a note.
This fiscal, the import parity price of urea has declined as are prices of raw materials to make complex fertilisers. This could translate into a reduction in subsidy in the next fiscal.
"However, what will complicate matters is the re-pricing of domestic gas to international benchmarks effective this April. This will raise the subsidy burden from urea manufactured using domestic gas as feedstock," Sural said.

For every USD 1 per mmBtu (million metric British thermal unit) increase in the price of gas, the government's additional subsidy outgo is estimated at Rs 3,000 crore. On the other hand, for urea manufactured using re-gasified liquefied natural gas, the subsidy bill will remain vulnerable to high prices of the feedstock.