Urea consumption likely to remain sluggish: Indira Sec

Domestic fertilisers consumption is expected to remain under pressure as sluggish monsoon this year is likely to hit crop production. Further, increase in natural gas price is a new concern for the industry players, says Indira Securities.

November 10, 2014 / 11:18 IST

Indira Securities' report on fertilizer sector

Fertilizer sector is one of the vital industries for Indian economy as it produces a very critical raw material for agriculture which accounts about 15 percent of Indian GDP, providing sustenance to two-third of country's population. Indian fertilizer industry consists of two key segments - urea fertilizer and non urea fertilizers. Within these two segments, the urea fertilizer segment accounts for around 50% of the total fertilizer consumption and is regulated by the government as the price and the subsidy is fixed by the government. While, non-urea segment which consists of the DAP, complex NPK and MOP fertilizers, functions under a fixed subsidy. India is world's largest consumer of fertilizer after China. Nitrogen, Phosphate and Potash, (N, P & K) are the three nutrients which are used by fertilizer manufacturer for the production of urea and non-urea fertilizers. As industry manufactures a very critical raw material for agriculture which is the major occupation of the country, the primary objective of sector is to ensure the supply of primary and secondary nutrients in the required quantities. Till now, India has achieved 75% self-sufficiency in production capacity of urea. Similarly, 50% indigenous capacity has been developed in respect of phosphatic fertilizers to meet domestic requirements. However, the raw materials and intermediates for phosphatic fertilizers are largely imported. While, the country does not have potash (K) resources and has to entirely depend upon import for meeting the requirement of Muriate of Potash (MOP).

Outlook"Increasing population and shrinking land resources in the country have increased the number of crop cycles that inadvertently reduce the productivity of the soil. Fertilizers play an important role in increasing the fertility and productivity of soil, which make it possible to churn-out more crops. Over the past few years, India's urea consumption has been growing at secular trend, increasing import dependence as there has been no significant investment in the fertilizer sector in the last several years. However, domestic fertilisers consumption is expected to remain under pressure as sluggish monsoon this year is likely to hit crop production. Further, increase in natural gas price is a new concern for the industry players."

"On the positive side, industry performance in near term is expected to be aided by base effect of low sales during FY14, relatively stable, muted raw material and finished fertiliser prices in the international market and expected decline in subsidy delays during FY15. Moreover, investment in sector is also expected to increase as the government has clarified the doubts over urea investment policy and natural gas price hike", says Indira Securities research report.

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