The Hindu Business Line : Talks of delay in issue of fertiliser bonds hit stocks

Fertiliser stocks had gained substantially after the government’s decision to release 7,500 crore of fertliser bonds to the fertliser companies. Nagarjuna Fertlizer & Chemicals Ltd fell by 6.24 per cent, Rashtriya Chemicals & Fertilizers Ltd was down by 1.75 per cent while Mangalore Chemicals & Fertilizers dipped 5.01 per cent on Friday. According to analysts, this industry unlike many others works on subsidy, and its profitability too is affected by the lack of funds through subsidy.

Earlier in the year, the Government had announced plans to issue fertiliser subsidy bonds amounting to Rs 7,500 crore for the sector as companies were facing interest burden due to mounting capital requirement.

Expected bill

According to a report by Emkay Shares and Stock Brokers, the fertiliser subsidy bill for FY-08 is expected to touch Rs 40,000 crore (not including the Rs 12,000 crore pending for last year) as against the budgeted Rs 24,000 crore.

The Finance Ministry had proposed to fill the resulting deficit by issuing fertiliser bonds amounting to Rs 7,500 crore, and the rest through cash. “Share of fertiliser subsidies as a percentage of total explicit subsidy spending has increased alarmingly,” says an Enam study. Fertiliser subsidy as a percentage of fiscal deficit is about 15 per cent and is mounting, the report added.

“Issue of fertiliser subsidy was expected to give some relief to the fertiliser companies as these bonds would be freely tradable in the market and companies can liquidate them in cash, hence reducing the working capital requirement,” said Mr Rohan Gupta, fertliser analyst, Emkay Research.

Reverse rally

But a possible delay in relief in the form of subsidy given to the fertiliser sector has the stocks of these companies reversing the rally which they began after the Government’s proposed investment policy.

Nagarjuna Fertilizers & Chemicals had registered an all-time high on Thursday at Rs 66.25, whereas National Fertilizers recorded its at an all-time high a day before at Rs 53.

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