New fertiliser policy: Impact analysis & key beneficiaries

17982 Investors following Tata Chemicals. Share this News with them.

0

Like this story, share it with millions of investors on M3

New fertiliser policy: Impact analysis & key beneficiaries

In a major reform signal for the fertiliser sector, the Cabinet has approved the nutrient-based fertliser subsidy plan. It has allowed a 10% hike in urea prices and a price decontrol of all other fertlisers.

Post your opinion here

 

0

Tweet

Share on Tumblr

Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Tata Chemicals See previous management interviews See what other Experts & Brokerages are saying about Tata Chemicals

In a major reform signal for the fertiliser sector, the Cabinet has approved the nutrient-based fertliser subsidy plan. It has allowed a 10% hike in urea prices and a price decontrol of all other fertlisers. Under the new policy, subsidy will be given to nutrients like nitrogen, phosphorus, potash and sulphur. The government however, will continue to fix the prices of urea.

Vellayan, Chairman, Coromandel Fertilisers , says the move towards market pricing will take time. He sees a maximum price increase of 5% at the farm gate level. Kapil Mehan, Executive Director, Tata Chemicals , too expect to see stability in prices under the new regime. "A graded 5% price hike is reasonable," he adds.

The major beneficiaries of this plan include Coromandel Fertilisers, Zuari , Tata Chemicals, Gujarat State Fertilizers Company , and Rashtriya Chemicals & Fertilizers . SP Tulsian of sptulsian.com says his top four picks are Coromandel Fertiliser, Zuari Industries, Chambal Fertiliser, and RCF. From this list, Prakash Gaurav Goel, Fertilizer Analyst, ICICI Securities, expects Coromandel to be the biggest gainer.

The new fertiliser policy is expected to help attract investment. Mehan feels the international industry will now respond positively to this development. The move, Vellayan says, signifies the end of the bond regime in fertiliser.

Advising caution, Udayan Mukherjee, Managing Editor, CNBC-TV18, says there should not be any excitement in urea-based fertiliser companies at all. "If you want to stretch it, you can say, 'The government subsidy will go down and therefore people will have to wait less or not as long for that money to come in from the government, and to that extent it is positive for working capital.' That is a stretched kind of argument."

He feels investors need to differentiate between urea manufactures and complex fertiliser manufacturers. "On urea, there is little or no impact barring sentiment. If you look at the complex fertiliser space, let us see if they can implement this because there have been some voices of dissent."

Mukherjee says the catch in this policy is that prices are open to intervention. "Knowing how sensitive fertiliser prices are and if this seeming deregulation breaks down every time international prices of phosphatic and potash go up because it cannot be passed through and there is hue and cry from farmers then you will land back again into a petroleum kind of situation where deregulation works only in a certain price band. Every time that flares up, deregulation goes out of the window."

Below is a verbatim transcript of the interview. Also watch the video.

Q: Do you think it is an outright positive for the complex fertiliser stocks or is there still going to be some hiccups or question marks on implementation and how much the retail price can be raised in those segments?

Tulsian: I don't think that there should be any hiccups for the complex fertiliser maker but only point here is that we know that phosphorous is imported to the extent of 90% and potash is imported to the extent of 100%. So the companies, which are making the complex fertiliser, if they can procure or secure their feedstock or the raw material, which is we are seeing in case of two-three companies, then it will be good for the complex makers.

But coming on the pricing policy - I don't think that right now you have any hiccups but the moment we see huge increase in the price of crude because everything is linked to the crude. Ultimately naphtha is a feedstock for urea and even the prices of complex whether you talk of DAP or MOP everything is linked to the crude prices - at that point of time the problem may again come in because we have seen in the past complex fertilizers getting sold as high as Rs 50 per kilogram (kg).

If that situation occurs again then government action, which we see frequently in case of sugar, steel, cement then at that time they should not come in but yes for the next 12-months or so I don't think that there is any problem or any hiccups for the companies making complex fertiliser provided they can make the seamless or secured procurement of raw material.