Fertiliser Stocks in focus on Rs 10,000-cr Subsidy Payout

The news of a special banking arrangement of Rs 10,000 crores by the government for the fertiliser sector has boosted the top five fertiliser companies by market capitalization. Coromandel share price and Chambal Fertilisers share price have surged by 19 per cent in the past month.

Industry executives said that the subsidy dues to the fertiliser industry were Rs 35,000 crores over and above the budgeted Rs 70,000 crores. Of this, Rs 10,000 crores will be wiped off their balance sheets due to this special banking arrangement.

The fertiliser ministry had sought Rs 20,000 crores from the finance ministry under the arrangement for the period 2016-17. Under the arrangement the government borrows from a consortium of bank to pay fertiliser companies. The differential between the prevailing gilt and the market interest rates is borne by the industry.

During the period 2015-16, the Centre had approved a similar Rs 7,000 crores arrangement for fertiliser companies. In 2017-18, the Centre budgeted Rs 70,000 crores as fertiliser subsidy. However, the actual requirement is quite higher due to unpaid dues. The industry reckons these could be in the range of Rs 35,000 crores.

However, according to Rakesh Kapur, chairman of the Fertiliser Association of India (FAI), every time the Centre approves a special banking arrangement, share prices spike because the market expects the condition to improve. In reality, there has not been much change in the fundamentals.

He said urea sales during April-December 2016 were 7.5 per cent lower than in the corresponding period of the previous year, while DAP sales had fallen 7.8 per cent and NPK sales by 5.6 per cent.

The fall is largely due to stocks with retailers carried forward from a year ago. The fertiliser inventory in the country on 1^st April was estimated at 5.5 to 6 million tonnes against a requirement of 1 to 1.5 million tonnes.

Ratings agency ICRA in a research note issued in the month of December said that the upside in overall fertiliser sales in 2016-17 was likely to be limited to 2-4 per cent due to high systemic inventory.

An industry executive said that there was no notable impact of demonetisation on fertiliser sales, which allowed retailers to exhaust their inventory.

K Ravichandran, senior vice-president and head of corporate ratings at ICRA said that the sector expects something positive in the Budget in the form of subsidy payouts.

New urea projects are also expected to take off, which is adding to the sentiment, although there will not be a big change in fundamentals.

He further added that Rabi sowing has been good and fertiliser offtake has improved. Some market players feel this could help in improving the working capital requirement of companies.

NFL share price, one of the top 500 performing stocks for this quarter, as identified by Dynamic Levels has surged almost 12 per cent intraday on Monday. The stock has touched a new 52 week high value at Rs. 54.75.