With an over 80 per cent gain in the last one year, the stock Gujarat State Fertilizers and Chemicals (GSFC) has outperformed the Sensex. Apart from di-ammonium phosphate (DAP), GSFC produces caprolactam, a key input into synthetic textiles and urea, and complex fertilisers.
After suffering a setback to both sales and profits on account of a correction in global fertiliser prices in 2009-10, GSFC has made a strong comeback this fiscal. In the nine months ended December 2010, GSFC's profits have rebounded by over 150 per cent to Rs 544 crore even as sales registered 12 per cent growth to Rs 3,532 crore. The reasons for the comeback are two-fold. One, domestic demand for complex fertilisers has expanded sharply this year, helped by a good monsoon. Two, there has been a favourable shift in the policy regime for phosphatic fertilisers. A landmark shift to a nutrient based system for determining subsidy has also helped producers contract inputs and fix realisations at the beginning of the year. This system also allows producers to receive subsidies for nutrients hitherto not covered and reduces uncertainty about cash flows.
Prompt reimbursement of fertiliser subsidies in cash in place of bonds have helped free up working capital and lift margins for producers. Though demand may hold up, the current fiscal may prove more challenging for GSFC with input prices heading sharply up and the government allocating lower funds in the Budget towards fertiliser subsidy.
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.