Profits of fertiliser firms set to jump Q1 RESULTS PREVIEW
Expectations of a normal monsoon drive sales in the April-June quarter: ICICI Securities study
Profits of fertiliser companies are likely to jump by 44 per cent in the AprilJune quarter due to a sharp rise in sales driven by expectations of a normal monsoon.
A ICICI Securities study attributes the profit growth to the non-fertiliser business and the low base effect in the fertiliser business of some companies. The government’s efforts to reduce subsidy and increase the working capital of fertiliser companies have also helped.
Coromandel International is likely to gain from increased capacity, a higher proportion of unique grade fertilisers and last year’s weak base. GSFC will benefit from better spreads and lower tax rates. Tata Chemicals will be aided by an improvement in international operations and debt reduction. The sale of the shipping business will offset the performance of Chambal Fertilisers’ trading business.
“Sales of urea and phosphorus- and potassium-based fertilisers are likely to grow 9 per cent and 5 per cent, respectively. Growth may be affected by de-stocking as the industry awaits clarity on cash transfers and implementation of the goods and services tax (GST),” said Prakash Gaurav Goel, research analyst, ICICI Securities.
Fertiliser production in India has risen 4 per cent annually since 2012-13 and is expected to reach 46-47 million tonnes. The government has decided to provide incentives for production beyond capacity in order to eliminate urea imports by 2021.
The government and public sector coal and oil companies are investing over ~50,000 crore to revive closed fertiliser plants and are setting up pipelines to make India self-sufficient in urea.
Prices of all raw materials for fertilisers have fallen in the last 18 months. Phosphoric acid is down 28 per cent from December 2015, rock phosphate 18 per cent, ammonia 13 per cent and sulphur 32 per cent. “The GST rate of 5 per cent will lower fertiliser prices in a majority of states. Haryana, Punjab and Andhra Pradesh, where fertilisers were exempt from value-added tax, will see a 4 per cent increase,” said K Ravichandran, senior vicepresident and group head of corporate ratings at ICRA.