Fertiliser companies are expected to register healthy profitability in the current financial year due to the robust fertiliser off-take by the farmers in the first quarter coupled with strong growth visible across segments, according to a report.
The urea fertiliser sales volume witnessed an annual growth of 69 percent, Di-Ammonium Phosphate (115 percent), Complexes (120 percent), Muriate of Potash (70 percent) and Single Super Phosphate (43 percent), ICRA Ratings said in a report.
ICRA in its report stated that in the initial phase of the lockdown, dispatches were affected due to the shortage of labour and shutdown of a few fertiliser plants located in the integrated chemical complexes.
However, with relaxations provided by the local authorities and safety norms implemented by the companies, the operations were restored in April.
Moreover, fertiliser production and dispatches remained largely unaffected owing to their classifications as essential commodities, it added.
During the first quarter, robust growth in fertiliser off-take was witnessed mostly because farmers wanted to stock fertilisers early in order to avoid shortages in case implementation of lockdowns that could have hampered the availability later in the season, ICRA Group Head and Senior Vice President K Ravichandran said.
"Additionally, with the government transferring funds under various schemes, the purchasing power of farmers also improved with cash in hand which could have also supported fertiliser off-take.
"As a result of robust volume growth, the fertiliser companies are expected to post healthy profits in first quarter 2021," Ravichandran added.
Phosphatic fertiliser companies will be major beneficiaries of the volume growth as the sales volume for this particular segment has nearly doubled in the first quarter of fiscal year 2021 compared to the same period of previous fiscal, while raw material prices have remained subdued, he noted.
With healthy monsoon forecasted, sales should remain buoyant in the rest of the year as well, albeit not maintained at the elevated levels of the first quarter, he said, adding that the market collections for companies also have been healthy as well resulting in easing of the liquidity pressure in the fertiliser companies.
The subsidy inflow from the government, however, has been slow after a sizeable chunk being paid out in April, said the report.
The subsidy inflow in May and June has been low and the working capital borrowings of the companies are expected to rise given the increase in the fertiliser sales volume not being supported by an equivalent increase in the subsidy payout by the government.
However, the report said with market collections being much better than the prior periods, the liquidity position of the phosphatic fertiliser companies is expected to be much better given a smaller component 30 per cent of their overall realisation coming from the subsidy.
Urea players, however, would witness a significant increase in the working capital borrowings as subsidy forms a major portion of 70 per cent of their realisations.
Going forward, the subsidy budget for financial year 2021 is expected to remain inadequate to meet requirements for the year, resulting in an increase in the backlog for the industry, it said.
Thus, toward the second half of financial year 2021, ICRA expects the working capital borrowings for the fertilisers companies to increase resulting in the moderation of the credit profile.