New fert policy recognises global mkt realities: Coromandel

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » RELATED NEWS Fertilisers stocks boost up by new Fertilisers policy No change in MRP in new fertilser policy ALSO READ See latest News about Coromandel Int See previous management interviews See what other Experts & Brokerages are saying about Coromandel Int Coromandel Int BSE | NSE 25/05/12 Are Mutual Funds betting on Coromandel Int?

Government's approval of the new fertiliser policy has given a new lease of life to fertiliser stocks. The new fertiliser policy will fix base rate for 17 items and will now be for long-term as against yearly earlier. The fertiliser policy will also see no change in MRP of fertilisers and the government will save Rs 1,163 crore on the new policy.

Vellayan , the Chairman of Coromandel Fertilisers said it is a very realistic policy, and it recognizes market realities world over. The long-term view will change the dynamics positively for the company because now they can take a long term view on investment overseas to source material and make investments.

The company sees turnover to be around Rs 8000 crore; Rs 6,000 crore in subsidy and Rs 2,000 crore would be the MRP.

Excerpts from CNBC-TV18's exclusive interview with Vellayan:

Q: From the initial takeaways that you have heard, what do you make out of this new fertiliser policy?

A: It's a very realistic policy, and it recognizes market realities world over. They have linked the subsidies to import Diammonium Phosphate or DAP, which effectively means that your input costs are covered and because of the bio-fuel boom, there has been a surge in prices and there has been a lot of under recovery till now and I think it's a very positive move by the government, a timely move.

We are looking forward to the subsidy which is being paid in cash and not in bonds. Bonds will restrict our ability to buy raw material, which are now selling at a discount. But overall it was a very positive move.

Q: What could be the value of the total subsidy that could be accruing to players such as yourself and given that the MRP is only one fourth of the total cost that you incur?

A: Our turnover is to be around Rs 8000 crore; you would be getting about Rs 6,000 crore in subsidy and Rs 2,000 crore would be the MRP.

Q: Also about the base rate for 17 items has been fixed, what are the kind of items that this base rate pricing could include?

A: The nutrient based policy was announced just about two weeks ago by the Cabinet, and that's why the number of items in the P&K have individual subsidy rates, but it will follow the same route as the DAP.

Q: Do you believe that the full drawback that you had in terms of the import versus the domestic prices could be taken care of?

A: That's what the draft policy contains and if it will be passed in full, we expect the full reimbursement to take place.

Q: What do you expect the maximum farm gate prices to be or what was the recommendation that you were giving out?

A: If we take typically DAP as base, we have a total cost of Rs 50,000 and the MRP would probably be around Rs 10,000 and the rest is subsidy.

Q: From what we understand, it has been indicated that now they are taking the long term view and it's not the yearly policy - would that change the dynamics for your company?

A: Yes positively, because we can take a long term view on investment overseas to source our material and make investments. Our company is present in South Africa and Tunisia; we were reluctant to take long term bets because of the short term policies, but now that will change.

Q: What kind of a long term investment decisions are you expecting to make at this point?

A: In the phosphate sector, we are looking at investing in countries which have phosphate reserves and can be exploited to bring back either as rock or as phosphoric acid.

Q: Which is imported on a significant amount, 36% and 54% for rock and phosphoric acid, so even on that aspect, this you believe is very big for a company as yours?

A: Especially if it is a five-year policy it is giving us the right signals to invest long term. 

Q: And there would be a significant requirement for sulphur and potash as well?

A: Yes, but sulphur is a byproduct, you can't invest there, you have to buy it in spot. But it is possible to invest in potash and there are a few countries and we are exploring.