Sales of complex fertilizers are likely to grow by 4-5 per cent in FY2025 on expectations of normal monsoon and stable retail prices.

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Crisil Ratings in a statement said the domestic sales volume of complex fertilizers will revert to the historical growth rate of 4-5 per cent in fiscal 2025 after a strong 7-8 per cent jump in this fiscal. This will be supported by expectations of a normal monsoon and stable retail prices.

The lower volatility in raw material cost will support commensurate nutrient-based subsidy (NBS) by the government and help improve operating profitability of manufacturers to a normalised level of about ₹4,000-4,500 per tonne next fiscal after a decline this fiscal. That, along with timely release of subsidies — in line with the trend seen in past few years — will keep working capital requirements low for fertilizer makers and credit profiles stable, Crisil, said in a statement.

Profitability cut

Naveen Vaidyanathan, Director, CRISIL Ratings, “The high volume growth this fiscal is riding on better availability and record pre-buying by farmers in the first half in anticipation of retail price hikes in the second half. Next fiscal, we expect it to be supported by expectations of adequate NBS rates and a normal monsoon. The medium-term growth outlook for complex fertilizers is positive as balanced soil nutrition is imperative for better productivity and yields, and availability is adequate and at subsidised rates.”

Vaidyanathan said the profitability, however, will see a sharp cut this fiscal before rebounding in the next. For complex fertilizer makers, profitability is typically a function of raw material input prices, commensurate NBS rates and retail sales prices.

NBS rates are usually revised bi-annually to align with fluctuations in raw material input prices, ensuring that retail prices for farmers remain largely stable. Consequently, this approach leads to consistent profitability for farmers. The story has been different this fiscal. Declining raw material prices in the first half led to a slashing of NBS rates for diammonium phosphate (DAP) and nitrogen, phosphorus and potassium (NPK) grades by 40 per cent for the second half. However, contrary to expectations, prices of raw materials such as phosphoric acid, ammonia, rock phosphate and sulphur subsequently rose and are higher than first-half levels.

Nitin Bansal, Associate Director, Crisil Ratings, said: “Operating profitability of complex fertilizer makers is expected to decline by 30-35 per cent to ₹3,000-3,500 per tonne this fiscal as limited ability to pass on higher raw material prices amid a sharp reduction in NBS rates will result in lower profits. But next fiscal, profitability is expected to normalise to ₹4,000-4,500 on expected revision in NBS rates in line with more stable raw material prices.”

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That said, reduced subsidy requirement due to lower NBS rates and timely disbursement of subsidies are largely offsetting the impact of reduced profitability on net leverage. Leverage, as measured by the ratio of net debt to earnings before interest, taxes, depreciation and amortisation (Ebitda), is projected at 1.5 times this fiscal versus 1.4 times last fiscal. Going ahead, rise in raw material prices without a commensurate increase in NBS prices will be monitorable, Crisil said.