Market gave a thumbs down to chemical fertiliser makers with their stock falling 2-8 per cent in trade on Wednesday. The stock of state-owned Urea producer National Fertilisers Ltd lost the most, losing over 8 per cent, while India’s largest private sector phosphatic fertiliser maker Coromandel International’s stock was the outperformer, gaining 0.6 per cent. The lacklustre trade in fertiliser stocks was on two counts.
For one, fertiliser being a controlled industry with the sale price regulated by the government, the budgetary allocation for subsidy is closely looked at by investors. In the FY24 budget, the overall fertiliser subsidy allocation was ₹1,75,103 crore, which though was 66 per cent more than the budget allocation of ₹1,05,222 crore in FY23, is 22 per cent lower than the revised estimate for FY23, which stood at ₹2,25,222 crore. Of the total allocation, the FY24 subsidy allocation for urea was higher compared with the budget estimate for FY23 by 107 per cent and about 15 per cent lower compared to the revised estimate.
The reduction in the subsidy vis-à-vis revised estimates for FY23, is largely on account of moderation in the global oil prices and resultant correction in the prices of feedstock such as gas, naphtha etc. The reduction in the allocation for urea, compared to the revised FY23 estimates is not a cause for concern, given that raw material cost is a complete pass through for urea producers and the difference between the cost (plus a normative profit) and the selling price is reimbursed by the government as subsidy.
For phosphatic fertilisers, where the government reimburses a fixed subsidy and the balance is recovered from farmers as selling price, subsidy allocation for FY24 is lower than FY23 revised estimate by 38 per cent and higher than the budget estimate for FY23 by about 5 per cent. Though phosphatic fertilisers are decontrolled and the subsidy is fixed, the government, in the interest of farmers, has in the past, stepped up the subsidy, whenever the underlying raw material prices have risen significantly.
Hence, we do not foresee any adverse impact on fertiliser makers on account of lower provision.
The second reason, why fertiliser stocks took a beating on Wednesday, was on account of concerns over the impact of PM PRANAM scheme (PM Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth) wherein the government plans to incentivise usage of alternative fertilisers and promote balanced use of fertilisers. Further, the Budget also spelt out the intent of the government to promote natural farming by roping in about 1 crore farmers, and setting up of 10,000 bio input resource centres, which will distribute bio fertilisers and pesticides. While this, over a period of time can replace chemical fertilisers and agrochemicals, we do not foresee any material impact in the immediate term. Further, several chemical fertiliser companies including Coromandel International and agrochemical makers such as PI Industries, Insecticides India are also building their biofertiliser and bio pesticide product portfolio, which will help the smooth transition from chemical to biological and earth-friendly agri inputs.
Other schemes such as decentralised storage facility for farmers, promoting millets (Shree Anna) will also have a positive rub-off on agri inputs makers.
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