Pressure likely on producers’ profit margins

Makers of phosphatic and complex fertilisers have seen significant improvement in their profitability and better stock market multiples, after the selling prices for these fertilisers were decontrolled a few years ago.

Given this backdrop, any move to bring selling prices back into control, will mean colossal damage to the prospects and stock prices for all listed non-urea producers.

More for bigger players

The impact may be more pronounced for the bigger players such as Coromandel International, GSFC, RCF and Tata Chemicals, others such as Mangalore Chemicals and Fertilisers and Deepak Fertilisers may also have to bear the brunt of this move.

The challenge for phosphatic and complex fertilisers makers is that they are largely dependant on imported inputs such as phosphoric acid, sulphur and ammonia for their domestic fertiliser operations.

Therefore, their sales and profits are quite vulnerable both to a spike in prices of these commodities and to rupee depreciation against the dollar.

A ‘ceiling’ on selling price, in this backdrop, will impose pressure on the profit margins of producers and make them less attractive to investors.

Barring RCF, the earnings of all other leading players have already nearly halved in 2012-13.

The stock market performance of these companies has also been nothing to write home about.

They have already lost 10-50 per cent in the last one year and trade at lower single digit price-earnings multiples.

The prospect of price control may only worsen matters.

> nalinakanthi.venkataraman@thehindu.co.in

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