Mumbai, Jul 31 (PTI) The demand for fertilisers in H1 FY18 is expected to witness good recovery due to satisfactory progress shown by monsoon leading to growth in Kharif sowing, a report said here. Also Read - Karnataka Agriculture Minister Takes COVID-19 Vaccine at Home, Centre Seeks Report
“The demand for fertilisers in H1 FY18 should witness good recovery, given the lower base for H1 FY17 and satisfactory progress shown by monsoon leading to growth in Kharif sowing. Also Read - Coronavirus: 5 States Witness Spurt in Cases in 24 Hours, Maharashtra Extends Lockdown in 2 Districts | Key Points
“However, Direct Benefit Transfer (DBT) implementation being deferred till January 2018 is a setback in terms of implementation of the system,” ICRA Corporate Ratings senior vice-president & group head K Ravichandran said in a statement here. Also Read - Karnataka Man Strangles Leopard to Death in Battle of Survival, Hailed as Real Life George Kutty
The fertiliser sector was favourably impacted by lower raw material prices in FY17 leading to margin expansion in FY17. Lower interest expense driven by lower working capital borrowings coupled with declining interest rates provided further support to profitability in FY17.
Given the subdued raw material prices and satisfactory progress of monsoon, urea players should see stable profitability while non-urea players will see their moderation in profits due to the inverted duty structure under GST in FY18, the report said.
Thus, the overall profitability of the sector is expected to remain moderate in FY18. The working capital borrowings are expected to remain in-line with FY17 levels, it said.
However, indebtedness of the sector is expected to increase in FY18 and FY19 as urea players undertake capex for meeting the energy norms under NUP-2015 applicable from FY19 onwards. Thus, the credit metrics for the sector are expected to remain subdued in the near term, the ICRA report said.
Primary fertiliser sale was lower by nearly 7 per cent in FY17 driven by decline in sales of urea as well as non-urea fertilisers by 7 per cent and 6 per cent respectively.
ICRA research, in its July 2017 update of its fertiliser industry report said urea sales were down due to implementation of 100 per cent neem-coating of urea which has curbed black marketing and improved the nutrient effectiveness.
Non-urea fertilisers witnessed drop in sales mainly due to un-even spatial distribution of monsoon and severe drought in several districts, in southern states of Karnataka and Tamil Nadu.
“The softness in R-LNG prices coupled with marginal downward revision in the domestic gas price will be favourable for domestic urea players as the cost of production will remain low, thereby keeping them competitive against urea imports, albeit earnings from energy saving projects will be impacted.
“Lower gas prices also lead to lower subsidy receivables, which would help keep the working capital borrowings lower for the industry,” the report mentioned.
ICRA said the implementation of GST rates is expected to impact Di-ammonium Phosphate (DAP) and nitrogen phosphorus potassium (NPK) manufacturers’ margins.
The implementation of GST is expected to lead to some headwinds for DAP/NPK manufacturers, who use imported phosphoric acid and ammonia for production (18 per cent GST as against 5 per cent on fertilisers), as the inverted duty structure will lead to domestic production being costlier than imports, which could impact the profitability of domestic manufacturers, it said.
The impact on players having captive phosphoric acid capacities using will be lower as rock phosphate attracts a tax of 5 per cent under GST, Ravichandran said.
This is published unedited from the PTI feed.