Fertiliser sales volumes to see moderate growth in H1 FY2018, says ICRA

New Delhi [India], Mar 24 : In ICRA's view, the demand for fertilizers in H1 FY2018 will witness moderate growth, given the lower base for H1 FY2017 and improved spending power of the farmer community with higher MSPs for rabi crops and strong sowing witnessed during the season.

The credit rating agency expects further thrust in fertilizer demand if the proposed farm loan waivers by various state governments get implemented.

"The recent uptick in international gas prices is expected to result in increased cost of production for the urea industry in H1 FY2018, which should translate to higher subsidies and higher working capital borrowings for the industry.

While the subsidy backlog at the end of FY2017 is expected to decline to Rs. 300-320 billion, allocation remaining unchanged at Rs. 700 billion for FY2018, coupled with rising gas costs and firming global fertilizer prices, should result in higher subsidy backlog at the end of FY2018.

Despite rising gas costs, the Indian urea units are expected to remain competitive against imports as international prices have witnessed an upward movement recently due to the pullback in Chinese exports during CY2016.

On the other hand the domestic P (and) K industry should continue to benefit in the near term from subdued international prices for key raw materials i.e.

phosphoric acid and ammonia," said senior vice-president and group head Corporate Ratings, K. Ravichandran. Fertiliser industry revenues witnessed a 15 percent decline in 9M FY 2017 vis-a-vis 9M FY2016 due to lower gas prices leading to retention prices for urea.

Further, sales of associated chemicals witnessed de-growth due to the down-cycle in commodity prices. However, the profitability of the industry remains moderate with operating margins at 10.8 percent in 9M FY2017 vis-a-vis 8.4 percent in 9M FY2016 due to the lower price of key raw materials.

The net earnings of the company's improved during 9M FY2017 to 4.4 percent on account of higher operating margins.

The return indicators continued to remain weak, while credit metrics continued to remain under pressure due to high reliance on working capital borrowings to fund subsidy receivables.

The primary sales for fertilizers declined nearly one percent during 11M FY2017 as the decline in urea sales (-six percent) was partially offset by the growth in non-urea fertilizer sales volumes (seven percent).

ICRA research, in its March 2017 update of its Fertilizer Industry Report says Urea sales were down nearly six percent due to implementation of 100 percent neem-coating of urea which has curbed black marketing and improved the nutrient effectiveness, coupled with the drop in prices of non-urea fertilizers, which had a favorable impact on NPK sales.

P (and) K fertilizer sales volumes grew by seven percent to 19.89 MMT during 11M FY2017 on account of the normal monsoon and healthy sowing levels witnessed during the rabi season.".

Source: ANI