Coromandel, Paradeep to gain from hike in subsidy rate for fertilisers

The government announced a hike in nutrient-based subsidy (NBS) rates for fertilisers by 45 per cent to ₹43.6 per kg of phosphate and by 48 per cent to ₹2.61 per kg of sulphur for H1FY26 (applicable from April 1 to September 30). The DAP (DiAmmonium Phosphate) subsidy has been increased by 9 per cent to ₹27,799 per tonne. The rates for nitrogen were revised downwards, and potash rate was unchanged.

 

The hikes favour backward integrated plants such as Coromandel International and Paradeep Phosphates, as well as standalone manufacturers – Mangalore Chemicals and Fertilisers and traders like Chambal Fertilisers. Broadly operating profit per tonne may increase by between ₹1,000-2,000 for affected companies.

 

Spreads had been contracting due to rising sulphur and rock-phosphate prices so increase in NBS rates and a steep drop in ammonia (which is nitrogen based) prices may more than offset the impact of rising sulphur and rock phosphate prices. The Single Super Phosphate (SSP) subsidy has been increased by 42 per cent (₹2,142) from last revision to ₹7,263 per tonne, which will benefit Coromandel International as the largest SSP manufacturer in India. The Triple Super Phosphate (TSP) subsidy has been increased by 42 per cent (₹5,888/tonne) and will favour Paradeep Phosphates.

 

The total subsidy is around ₹37,300 crore for the upcoming kharif season (H1FY26), which is 43 per cent higher than the total subsidy (including retrospective additional DAP subsidy) for H1FY25. Further, based on NBS policy rates, the subsidies for DAP and NPK (nitrogen, phosphorus and potassium) have been increased by 10 per cent and 15 per cent year-on-year (Y-o-Y) respectively for H1FY26, based on the notifications and the averaged proportion of these nutrients. The DAP subsidy is ₹27,800/metric tonne and the subsidy for NPK-20 is ₹17,663/metric tonne for H1FY26.

 

Despite the increase in subsidy rates, gross margins may not improve by commensurate amounts owing to the increase in global raw material prices and rupee depreciation. Global DAP prices have risen 9 per cent Y-o-Y in dollar terms, to $623/tonne. Phosphoric acid prices also increased 9.5 per cent Y-o-Y to $1,060/tonne. In addition, rupee depreciation has added to costs for imports.

 

Early calculations suggest that even with the subsidy hike, gross margin may in fact have been 200-300 basis points more for H1FY25, versus the coming H1FY26. However, backward-integrated plants will gain, and so will importers. The subsidy (and prevailing raw material price) favours manufacture of NPK-20 more than DAP, as NPK-20 will have better margin.

 

The government's expectations for the subsidy is ₹37,300 crore (vs ₹24,400 crore in H1FY25 actual) and the budgetary allocation is ₹49,000 crore for FY26. Based on current raw material price trends, the margin for conversion of rock phosphate to phosphoric acid (important precursor raw material for DAP) will shrink Q-o-Q and Y-o-Y.

 

However, in H1FY26, phosphoric acid prices may inch higher towards $1,100/metric tonne from $1,060/metric tonne in Q4FY25 based on our channel checks. Hence, backward integrated players may see healthy margins in ensuing quarters. DAP prices have moved up from $550/metric tonne in Q1FY25 to $630/metric tonne currently. Historically, changes in DAP prices have been consistently followed by similar movements in phosphoric acid prices, which in turn has led to a shift in rock phosphate prices, with lags.

 

Analysts are bullish about Paradeep Phosphate with earnings upgrades for FY26 and FY27, and Coromandel International is also starting to see earnings upgrades for FY26. Chambal Fertiliser will see smaller earnings upgrades.