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Stocks of fertiliser makers have clocked healthy returns in the last one year.
Most leading urea and complex fertiliser makers in the listed space have bettered Sensex since February 2014, thanks to the strong financial performance in 2014-15.
While stocks of GSFC and RCF have more than doubled in the past year, others such as Tata Chemicals, Chambal Fertilisers and Coromandel have gained between 40 per cent and 70 per cent.
Both urea and complex fertiliser makers have benefited from the softening of global commodity prices.
For complex fertiliser makers such as Coromandel and GSFC, correction in the prices of key inputs such as sulphur and phosphoric acid coupled with a pick-up in fertiliser offtake by the distributors aided profit growth. For instance, the pre-tax profit of GSFC’s fertiliser division trebled during the first half of 2014-15 to ₹210 crore, from ₹74 crore during the same period last year. Likewise, Coromandel’s profit grew 17 per cent during the April-September 2014 period, compared with a year-ago period. Urea makers, which were grappling with non-availability of cheaper domestic gas, benefited from the fall in spot LNG gas prices following global crude oil rout and weak gas demand in China. Healthy urea sales and reduction in raw material cost have boosted the profitability of urea producers. For instance, Chambal Fertilisers, which produces over 2 million tonnes of urea annually, saw its fertiliser segment profit rise by over 25 per cent to ₹387 crore during the first six months of the fiscal.
Even as falling interest rates will spell some relief, adequate provision for subsidy in the ensuing Budget will be important for fertiliser producers to manage their working capital.
The Modi-led government in its maiden 2014-15 Budget hinted at a new urea policy. In light of rising urea imports and ballooning subsidy burden, decontrol of urea and increased investment in urea will be critical not just to improve the country’s and the industry’s finances, but also the soil health, which has deteriorated due to indiscriminate urea usage.
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