Use Fer­til­izer (Stocks) To Grow Port­fo­lio Re­turns

Lo­hit Bharambe and Nikita Singh delve into rea­sons why fer­tiliser sec­tor is be­ing re-rated by the in­vestors

Dalal Street Investment Journal - - CONTENTS -

In­dian fer­tiliser in­dus­try is see­ing a healthy re-rat­ing by in­vestors, as is seen in the ris­ing stock prices of sev­eral of the fer­tiliser com­pa­nies. While realty stocks, banks and fi­nance com­pa­nies have out­per­formed mar­kets on YTD and one-year ba­sis, fer­tiliser stocks have been a pleas­ant sur­prise, mov­ing up with­out much ado.

Fer­tiliser stocks on an av­er­age have de­liv­ered re­turns in ex­cess of 65 per cent on a YTD ba­sis, whereas the re­turns de­liv­ered over one- year pe­riod is in ex­cess of 80 per cent. So what is brew­ing in the fer­tiliser space and will the fer­tiliser stocks gain fur­ther ground?

As of now, In­dia is the sec­ond big­gest con­sumer of fer­tilis­ers in the world after with China. Un­der the cur­rent Modi gov­ern­ment, the fo­cus on the ru­ral econ­omy with an em­pha­sis on im­prov­ing agri­cul­ture eco­nom­ics is a pos­i­tive trig­ger for the fer­tiliser in­dus­try.

The con­sump­tion of fer­tilis­ers in In­dia is on the rise ow­ing to im­prov­ing farm economies and in­creas­ing thrust on ir­ri­ga­tion. As of now, In­dia is highly de­pen­dent on im­ports to ful­fil its fer­tiliser re­quire­ment. How­ever, al­most 80 per cent urea re­quire­ment of the coun­try is met from domestic pro­duc­tion.

In­dia ma­jorly im­ports phos­phatic and potas­sic (P&K) fer­tilis­ers. Urea pro­duc­tion in In­dia has grown by 8 per cent in re­cent years, mainly ow­ing to favourable policy changes by the Cen­tral gov­ern­ment.

The urea re­quire­ment in In­dia is also on the rise. Al­most 80 per cent urea re­quire­ment of the coun­try is met from domestic pro­duc­tion.

The re­vised GST rate at 5 per cent, down from 12 per cent, can be seen as a big boost to the vast agri­cul­ture sec­tor in the coun­try. One can ex­pect drop in prices to in­crease de­mand for fer­tilis­ers

Un­der the Modi regime over the last three years, there has been an at­tempt to boost the ru­ral econ­omy. Ef­forts have been taken to pro­mote en­ergy ef­fi­ciency in urea pro­duc­tion and max­imis­ing domestic urea out­put. One of the fo­cus ar­eas also has been timely im­ports of urea and other fer­tilis­ers meet­ing the de­mand at the ground level.

The fer­til­iz­ers that are cov­ered un­der the sub­sidy scheme are urea, di-am­mo­nium phos­phate (DAP), muri­ate of potash (MOP), mono am­mo­nium phos­phate (MAP), triple su­per phos­phate (TSP), am­mo­nium sul­phate (AS), sin­gle su­per phos­phate (SSP) and other com­plex fer­til­iz­ers

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