 "Top firms exit fertiliser biz on delayed subsidy payouts, falling margins")
After a long delay, Aditya Birla Group’s flagship firm Grasim Industries sold its fertiliser business on Thursday within two years of Tata Group exiting the sector, citing falling returns and delay in getting subsidy payments from the Indian government.
Aditya Birla Group sold the business to Indorama Corporation for Rs 2,649 crore.
Tata Chemicals had sold its urea business to Norway's Yara Fertilisers India for Rs 2,682 crore in 2018.
While company officials termed it "value unlocking", industry insiders claimed that falling margins in a highly regulated sector is the primary reason for divestment by Indian companies.
In June this year, the BSE-listed Zuari Agro Chemicals - struggling with its core fertiliser business - decided to sell its Goa fertiliser plant to unlisted Paradeep Phosphates for Rs 2,100 crore.
Zuari and its partner OCP Group of Morocco hold 50 per cent stake each in Zuari Maroc Phosphates, which, in turn, holds 81 per cent in Paradeep Phosphates. Zuari will use the funds to repay its debt.
Cheaper imports from China, Iran, and Oman, too, are a threat to the fertiliser sector, said analysts.
Indian companies are reducing investments, given the government pays the subsidy to the producer after a backlog of 6-12 months. As a result, fertiliser manufacturers have long working capital requirements, which add to their costs, along with a longer cash conversion cycle.
“Fertiliser companies depend on government subsidies to make money. Since these subsidies are released late, it impacts the margins and pulls down the overall performance of the company,” said an industry insider.
Moreover, the fertiliser subsidy to be disbursed in 2020-21 (FY21) has been reduced by 12 per cent to Rs 71,309 crore. This could be insufficient for the fertiliser industry, long plagued by inadequate subsidy provisioning.
“This could lead to a subsidy backlog, thereby impacting the liquidity position of the industry,” said a report by rating firm CARE early this month.
The good news for new investors is that the sales of fertilisers have increased 25 per cent during April-August this year. The sales of urea, diammonium phosphate, and muriate of potash have increased 6.5 per cent, 28 per cent, and 15.6 per cent, respectively, during the first half of the current financial year.
Panic buying by farmers and dealers, coupled with low prices of the commodity, had led to increase in sales of fertilisers in the beginning of FY21, said CARE Ratings.
‘’Farmers were stocking up on fertilisers for the ongoing kharif season and were building up stocks to avoid logistical issues which could have been faced due to the Covid-19 pandemic. But a favourable monsoon season has also resulted in record kharif sowing, supporting the increased sales momentum. In September, however, sales have moderated with the kharif sowing season getting over,” said the rating firm.
Top exits:
* Grasim sells to Indorama for Rs 2649 cr
* Zuari Agro sells Goa unit to PPL for Rs 2100 cr
* Tata Chem sells fertiliser unit to Yara for Rs 2682 cr
