Subsidy arrears, low Urea prices may dampen growth: Zuari

As per some news reports doing rounds, the government is unlikely to pay Rs 40,000 crore subsidy arrears to fertilizer companies. Reacting to the news, Kapil Mehan, MD & Group CEO, Zuari Agro Chemicals says that he has not received of any information yet. If the government does not pay arrears this year, then it could go upto Rs 45,000 crore by March-end. The main problem faced by the industry is the mounting arrears since last three to four years, Mehan says adding that government has not increased Urea prices, which is the main reason behind subsidies. Zuari currently has Rs 1,250 crore unrealised dues from the government, he says adding that the company only has short-term debt on its book. The working capital debt – nearlr Rs 400-500 crore – can be settled through internal capital, he says. The company is functioning at almost capacity in all its segments. Working capital debt, subsidy arrears and rupee depreciation could dampen growth, he says. Below is the verbatim transcript of Kapil Mehan’s interview with Mangalam Maloo & Ekta Batra on CNBC-TV18.Ekta: Have you heard anything official from the government itself with regards to an unlikely payment of fertiliser arrears this fiscal?A: We haven’t heard any such news in the recent past. On the contrary we had our annual fertiliser seminar of the Fertiliser Association of India where the Honorable Minister had actually made a statement that he is discussion with Finance Minister to provide for this subsidy arrears in the current fiscal itself. So, this news we have not verified or heard at yet. Mangalam: Even if this does come through is this something on expected lines and also what is the current data on your pending dues coming in from the government?A: In case there are no further budgetary allocations there during the year. Our industry estimate is that by March end there will be over dues of about Rs 45,000 crore which would be unpaid which is higher by about Rs 8,000-10,000 crore as compared last years. So, that is not great news for the industry. As far as Zuari is concerned we have currency around Rs 1,250 crore or so as dues from the government. Out of that two months we keep as current and balance what Rs 900 crore would be over dues.Ekta: So how has been the payment pattern till now for this financial year?A: So, far it has been on time, little bit of administrative delays. However, by and large so far the payments have been coming forth. The bills of September now are being processed as far P&K fertlisers as well as urea is concerned. However, after that we are likely to run out of urea budget and then maybe we will another month or two we will be running out of phosphate and potash budget also. Ekta: You think you are going to fact working capital constraints if in case the arrears are not paid in the coming months or weeks?A: That is a sort of issue that the industry has been facing for the last three-four years. the government doesn’t provide for additional subsidy budget nor raises selling price of urea which is the major cause for this subsidy delays and under provisioning of subsidy. So, at some point government will have to clear these dues and that is what our requests and follow-up with the government has always been.Mangalam: Also a word on your debt because your finance cost in the second quarter were up close to that Rs 70 crore mark weighed down on your bottom-line as well so could you give us an update on what the long-term and short-term debt stands on your books?A: We have no long-term debt on our book it is all short-term debt primarily working capital debt. It is about Rs 400-500 crore of investments that we made in Mangalore Chemicals and Fertilisers (MCFL) shares which is again largely it should be through in terms of accruals. So, basically it is all a short-term working capital debt that is sitting on our books. That will come down substantially if in case the government were to pay subsidies on time. This year we had little bit of pressure due to monsoon failure etc. There was little bit of inventory which got build up but that is now getting corrected in next 60 days or so. We will see substantial reduction in our operating working capital. But a subsidy dues is the cause of concern.Mangalam: Also a word on your debt because your finance cost in the second quarter were up close to that Rs 70 crore mark weighed down on your bottom-line as well so could you give us an update on what the long-term and short-term debt stands on your books?A: We have no long-term debt on our book it is all short-term debt primarily working capital debt. It is about Rs 400-500 crore of investments that we made in Mangalore Chemicals and Fertilisers (MCFL) shares which is again largely it should be through in terms of accruals. So, basically it is all a short-term working capital debt that is sitting on our books. That will come down substantially if in case the government were to pay subsidies on time. This year we had little bit of pressure due to monsoon failure etc. There was little bit of inventory which got build up but that is now getting corrected in next 60 days or so. We will see substantial reduction in our operating working capital. But a subsidy dues is the cause of concern.