Mumbai, Apr 5 (PTI) The demand for fertilisers in the first half of the current financial year is likely to remain stable on the outlook for normal monsoon and higher farm income, a report said.
This price of various phosphatic fertilisers are expected to also remain stable for the upcoming year on higher subsidy, rating agency Icra said in a report.
“The demand for fertilisers in H1 FY19 is expected to remain stable following outlook for normal monsoon during the kharif season and expected higher farm realisation for crops supported by assurance by the government for MSP (minimum support price) at 150 per cent of the cost incurred by farmers,” its analyst Satyajeet Senapati said.
The Cabinet Committee on Economic Affairs (CCEA) last month increased the nutrient-based subsidy (NBS) rates for phosphate and sulphur for financial year 2018-19.
Icra said the revision in NBS rates comes on the back of rising international diammonium phosphate (DAP) and sulphur prices owing to higher raw material prices and tightening phosphatic supplies from China.
“This price revision should keep the retail price of various phosphatic fertilisers stable for the upcoming year, as higher subsidy will help in mitigating the rise in international DAP prices,” said Senapati.
The CCEA, however, had reduced the NBS rates for potash by 10 per cent.
Icra said retail price of muriate of potash (MOP) is expected to witness an increase of Rs 500-700 per tonne, owing to lowering of subsidy.
“Overall, the change in subsidy levels is not expected to have any material impact on the demand for P&K (phosphatic and potassic) fertilisers.
In the union budget of FY19, the government had increased the subsidy allocation for P&K fertilisers to Rs 250 billion from Rs 222 billion in FY18.
“The increased allocation should enable the government to meet the increased subsidy outgo for the P&K fertilisers estimated at Rs 230 billion for FY18-19,” said Senapati.
According to Icra, the revision in NBS rates is largely neutral for the fertiliser industry unless monsoon acts as a disappointment in the upcoming kharif season leading to diminution of demand and thus impacting profitability of the industry.
The report noted that the fertiliser industry’s financial performance continued to remain moderate in the first nine months of FY18.
Operating income witnessed a 13 per cent growth owing to the volume growth in fertiliser segment and growth in chemical segment realisation during the period, while lower raw material prices continue to provide tailwinds to the operating profitability of the sector.
The agency said the overall profitability of the fertiliser sector will witness significant improvement in FY18 as against FY17, though on an absolute basis it will continue to remain moderate in FY18.
The credit metrics of the sector should remain subdued in the near-to-medium term, as urea players undertake capex to meet energy norms under the New Urea Policy-2015, applicable from FY19 onwards, it added.
According to Icra, the primary fertilisers sales saw a modest growth of around 2 per cent in FY18, on the back of low systemic inventory maintained by the fertiliser companies in view of pan-India implementation of direct benefit transfer.
Overall urea sales recorded a growth of 2 per cent in FY18, while non-urea fertiliser sales volume also grew at a fair rate of 2 per cent during FY18 driven by healthy sales of DAP, MOP and complexes.
“The fertiliser sales growth is back on a positive trajectory post a 7 per cent decline witnessed in FY17,” the report said.
This is published unedited from the PTI feed.