The Primary fertilizers witness growth at 2% in the FY2018 because of the low systemic inventory maintained by fertilizer companies all over the country. The growth has been on an upward stride after a 7% decline in the FY2017.  

India: The primary fertilizers sales saw a growth of around 2% in FY2018, due to low systemic inventory maintained by the fertilizer companies in view of pan-India implementation of Direct Benefit Transfer (DBT). According to ICRA’s report on the fertilizer industry that was recently released, the overall sales for Urea have posted a 2% growth in the Fiscal Year 2018. Non-urea fertilizers sales volume has also grown at a fair rate of 2% during the year 2018, owing to healthy sales of DAP, MOP and complexes. The fertilizer sales growth is on a positive route after a 7% decline witnessed in FY2017.

The Senior Vice-President & Group Head for Corporate Ratings, ICRA, in an interview commented that the softening of spot R-LNG prices is anticipated to partly offset the higher domestic price in the H1 FY2019 and crude oil linked long-term R-LNG prices, which have shown significant growth in recent months. The pooled prices are projected to remain passive due to the softening R-LNG prices, after the abatement of winters in major demand centers like South Korea, Japan and China. The reduced pooled gas prices will enable domestic production of urea to compete against imported urea, as low gas prices result in lower subsidy for players in the urea market which further leads to lower working capital borrowings and associated interests. Nevertheless, with nationwide implementation of Direct Benefit Transfer (DBT), the working capital cycle of the industry might observe a marginal growth due to the shift in subsidy payment from point of dispatch to point of sale to farmers. The amendment in the dealer margins for urea dealers before implementation of DBT is a positive step in the direction of taking them along for the success of the initiative by the government.

In a meeting held on March 28, 2018, the Cabinet Committee on Economic Affairs (CCEA) has agreed on increasing the nutrient-based subsidy (NBS) rates for Phosphate and Sulphur for the FY2018-FY2019, decreasing the NBS rates for potash, while there is no change for Nitrogen. The subsidy for phosphate (P) has been increased to Rs. 15.216/kg from Rs.11.997/kg (27% increase) while the rate for Sulphur (S) has been raised by 22% to Rs.2.722/kg from 2.240/kg. The subsidy for Potash (K) has been reduced by 10% to Rs. 11.124/kg from Rs. 12.395/kg. The subsidy for Di-ammonium phosphate (DAP) will rise by nearly 16% while for various grades of complex fertilizers the increase in subsidy will be 4%-10% y-o-y, with the revision in NBS rates. The subsidy for Muriate of Potash (MOP) will decline by 10% y-o-y.

Moreover, it is predicted that the demand for fertilizers in H1 FY2019 is expected to remain stable, due to normal monsoon during the kharif season and expected higher farm realization for crops supported by assurance by the Government of India for MSP at 150% of the cost incurred by farmers. The revision in NBS rates is a result of rising international DAP and Sulphur prices owing to higher raw material prices and constricted phosphatic supplies from China. This price revision would keep the retail price of various phosphatic fertilizers stable for the forthcoming year, as higher subsidy will help in mitigating the rise in international DAP prices. However, retail price of MOP is anticipated to increase by Rs. 500-700/MT, due to lowering of the subsidy. The change in subsidy levels is will not have any material impact on the demand for P&K fertilizers. In the union budget of FY2018-19, the government had increased the subsidy allocation for P&K fertilizers to Rs. 250 billion from Rs. 222 billion in FY2017-18. This increased allocation would enable the government to meet the increased subsidy outgo for the P&K fertilizers, which is estimated at Rs. 230 billion for FY2018-19. The revision in NBS rates is largely neutral for the fertilizer industry if monsoon isn’t that promising in the upcoming kharif season leading to decrease of demand and thus impacting profitability of the industry.

The financial performance of fertilizer industry was moderate in 9M FY2018. The operating income saw a 13% growth owing to the volume growth in fertilizer segment and growth in chemical segment, during the period whereas lower raw material prices continue to help increase the operating profitability of the sector. Lower interest expenses, driven by lower working capital borrowings and a low interest rate environment provided support to the net profitability of the sector during 9M FY2018. While raw material prices had remained subdued for the P&K fertilizer manufacturers for major part of FY2018, most notably -phos acid and Sulphur, the prices have been stable in recent months. The companies have managed to pass the increase in raw material to farmers and have thus been able to protect their profitability.

The overall profitability of the fertilizer sector will observe a significant improvement in FY2018 as compared to FY2017, and it will continue to remain moderate in FY2018. The credit metrics of the sector would be subdued in the near-to-medium term, as urea players will take capex to meet energy norms under the NUP-2015, applicable from FY2019. The working capital borrowings are expected to remain elevated as the subsidy allocation for the fertilizer sector is fixed at Rs. 700 billion for FY2019. The government has approved a Special Banking arrangement for the fertilizer sector which will help to reduce subsidy backlog at the end of FY2018 and the interest costs for the fertilizer sector. However, the SBA is repaid from the budgetary allocation for the upcoming year and thus will lead to deferment of backlog to the next year.

According to TechSci Research, fertilizers play an important role in increasing efficiency of agricultural output. With the strengthening of pricing control policies and reforms, the fertilizers market is expected to be regulated soon in India. Fertilizer products are based on chemicals such as Nitrogen, Potassium and Phosphorus, where nitrogen-based fertilizers have the largest usage in India. Most of the Indian companies are entering into collaborations and joint venture partnerships with overseas companies because of limited availability of raw materials in India such as natural gas, crude oil, etc. As a result, Indian cooperatives/companies and their partners is jointly setting up new plants to ensure regular supply of raw materials. India also does not have any reserves for phosphates, which is also a major component of feed stock dependent completely on imports. The major factors which are driving the growth of the agricultural fertilizers market in India are government subsidy and increased demand of food grains. On the other hand, country is facing major challenges of limited availability of raw materials and irregular prices.

According to the recently published report by TechSci Research, “India Fertilizers Market Forecast and Opportunities, 2017”, Indian agricultural fertilizers market is anticipated to be growing at the CAGR of around 7% during 2012-17. Indian fertilizers market structure constitutes of public as well as private companies, manufacturing wide range of phosphatic and nitrogenous based fertilizers. The major players in Indian fertilizers market are Coromandle International, National Fertilizer, Chambal Fertilizers & Chemicals Limited, Rashtriya Chemicals & Fertilizers Limited, Gujarat State Fertilizers & Chemicals Limited, Nagarjuna Fertilizers, and Gujarat Narmada Valley Fertilizers and Chemicals Ltd.

Please follow our LinkedIn and Twitter pages to get live updates on market research insights and analysis.