Sowing hope: Fertiliser companies’ stocks gain on subsidy hike buzz

Suresh P. Iyengar | | Updated on: Dec 01, 2021

As chemical prices zoom, market watchers expect higher dole from government

Shares of fertiliser companies rallied sharply on expectations that the government will further increase fertiliser subsidy compared to last year as chemical prices across the globe have skyrocketed.

Chambal Fertilisers and Chemicals shares zoomed 9 per cent to ₹399, while Madras Fertilizers and National Fertilizers were up 8 per cent and 5 per cent each to ₹29 and ₹51, respectively.

Southern Petrochemical gained 5 per cent to ₹47, Nagarjuna Fertilizers and Chemicals, MP Agro Industries and Rashtriya Chemicals and Fertilizers added 5 per cent each.

The government has come under intense pressure due to a shortage of key fertilisers. With the sharp rise in input cost, fertiliser companies have decided to cut production as they are not able to pass on the incremental cost to farmers by hiking prices. The final selling price of most fertilisers is fixed by the government. The country is completely dependent on imported raw material for producing fertiliser and is also the largest importer of urea.

In October, the government approved a special one-time package for payout of additional subsidy for DAP and three most-consumed NPK grades. However, the rates under the Nutrient Based Subsidy (NBS) scheme were retained as announced in May. The government has fixed an additional pay out of ₹438 a bag (₹8,760 per tonne) for DAP (diammonium phosphate) and ₹100 per bag (₹2,000 a tonne) for the three most consumed NPK (nitrogen, phosphorus and potassium) grades to ensure farmers get access to fertilisers at reasonable retail price.

The additional subsidy was approved only for four grades of fertilisers out of the 24 covered under the NBS scheme and was effective from October 1.

Companies producing phosphatic fertiliser can expect a decent profit if the government increases the subsidy as rabi remains the main season for phosphatic fertilisers application, said an analyst.

In last two months, imported raw material prices have increased further due to a spike in coal and natural gas prices. Moreover, China and Russia, the largest exporters of raw material to India, have cut down on exports to avoid shortages in their own countries.

Published on December 01, 2021

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