Tarun Surana, Research Analyst (Institutions), Sunidhi Securities & Finance Limited suggests that though the depreciation of the rupee is increasing the costs of production for fertiliser companies, it is still sensible to buy GSFC and Zuari.
He recommends a hold on Coromandel since it is difficult to be bullish on gas due to stringent norms. However, one needs to wait and watch the urea based companies which fall under regulated policy. Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying video for more. Q: Your recent note states that you are a bit worried about the performance of fertilizer stocks. Is INR depreciation a big negative for them?
A: Yes, the currency depreciation increases the cost. Most of the fertilizer companies are big importers and the costs of raw materials are in dollar denomination. So a 4-5% jump in the cost due to INR depreciation is a cause to worry. Added to that they are unable to pass on the cost pressures to the farmers due to political compulsions. You have elections in five states due to which there might be some understanding that prices should not be raised until the elections are over.
For this purpose as well as for Q4 we expect pressure on margins on account of INR depreciation. Fertilizer companies
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