Fertiliser makers waiting for a lifeline

The performance of fertiliser stocks since last Budget was a mixed bag. While stocks of phosphatic fertiliser makers did turn around from February 2013, the stocks of urea manufacturers remained lacklustre during this period. The financial performance of urea makers was weak in 2013-14. For instance, Chambal Fertilisers and RCF saw operating profit decline by 2 per cent and 4 per cent respectively in 2013-14.

Dependence on expensive gas sources due to unavailability of cheaper domestic gas impacted profits.

In addition to weak operating performance, delay in subsidy payment by the Government added to the stress on the working capital and profits.

In contrast, stocks of phosphatic fertiliser producers — Coromandel International, GNFC and GSFC — have had a good run. These stocks have seen increased buying interest following an improvement in the financial performance during the March 2014 quarter. These fertiliser makers are to a certain extent import dependent. Therefore, the appreciation of the rupee against the US dollar, stable raw material prices and a moderation in fertiliser inventory were sentiment boosters for phosphatic fertiliser makers. For urea makers, the long pending proposal to increase farmer price, amendment in expansion policy and revamping projects to compensate for higher gas prices, will be eagerly awaited in the Budget.

For phosphatic fertiliser makers, there are no major reform expectations.

But stable crude and other raw material prices, a steady rupee against the dollar, a good monsoon and demand pickup will be critical to sustain healthy performance in FY15.

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