SP Tulsian's top picks from fertiliser space post policy

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Govt amends fertiliser policy, hikes urea prices ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

The government on Thursday approved a 10% increase in urea prices and partially eased controls over other fertilisers. Prices of urea would rise by Rs 483 per tonne from April 1.

In an interview with CNBC-TV18, SP Tulsian of sptulsian.com spoke about his reading of the new fertiliser policy and his top picks from the sector.

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?

A: 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.

Q: So would it be fair to say that only for companies like Coromandel, which have got international subsidiaries and access to phosphorous and potash - they could be the principal beneficiaries, others might be still left at the vagary of international price movements, which may not be able to pass down to farmers?

A: That is right. In fact, if you see the Coromandel Fertiliser, they have been increasing their presence in Africa and even same thing is happening with Chambal Fertiliser that now they have started moving on. Even RCF - I don't know what is the progress, I don't think that there is any considerable progress but they have entered into a joint venture (JV) with Rajasthan Industrial Investment Corporation for the rock phosphate. Rock phosphate is the source of phosphorous which comes from the mountains which we have in Rajasthan.

Except for that part of the country we do not have the source of phosphorous here. But yes in case of Coromandel Fertiliser, in my opinion, because they have the JV or arrangement with the Foskor and they should be the largest beneficiary but yes there are other players also as I said that Chambal Fertiliser is making a good progress in that direction; the promoting company of Chambal Fertiliser has also a significant presence.

The next player, which could take advantage of this, should be RCF. But I don't think that they have made any substantial progress of raw material procurement.

Q: If the MRP is to be based on the amount of nutrient rather than what the product is itself - what would you say should be the top three stocks that will move today or react positively?

A: Firstly, this seems to be the most pragmatic view of the government that subsidy should be based on the nutrients and not on the product because in the past, government has never allowed the product range to get enlarged for which the misuse of the fertiliser has been happening because even the farmers have not been taught properly to make use of the product because of the limited availability of that but once a nutrient-based pricing subsidy policy comes in, I think that is a very pragmatic view and that is how it should be.

Coming on the beneficiary again, as I said, that if you have the raw material procurement at your end because you should be having the strategic investment in the JV company or the overseas company from which you are procuring the raw material so even if you are paying a higher price, the part of that profit will accrue to the consolidated balance sheet and keeping that in view. My top three picks at least would be Coromandel Fertiliser, Zuari Industries, Chambal Fertiliser and I need to give the fourth name - it could be RCF.