Shares of most firms drop 4-24% since April, Sensex up 1%
Rutam Vora & Anindita Dey / Ahmedabad/ Mumbai Aug 29, 2012,
Business Standard
A weak monsoon has not only hampered prospects for farmers, but has also dampened chances of investments in fertiliser companies. Since the start of this financial year, shares of most of the leading firms have lost in the range of 4 to 24 per cent on the BSE, while the benchmark index, Sensex, has remained almost flat with a loss of around one per cent during the period under consideration.
The weakness in the shares is attributed to the sluggish demand on the back of poor monsoon and costly inputs. Overall, monsoon has remained deficient by 16 per cent so far across the country.
According to the balance sheet compiled by the department of fertilisers, ministry of chemicals & fertilisers, during April to August, the sale of all varieties, including the highly used urea, has fallen compared to last year. The requirement of fertilisers through the season was estimated lower.
This included urea at 9.53 million tonnes (mt) as against 12.1 mt in 2011, DAP (diammonium phosphate) at 4.43 mt against 5.77 mt last year, requirement for muriate of potash or MOP at 1.74 mt against 1.35 mt last year and that for complexes at 3.52 mt against 4.17 mt.
The sale of fertilisers during this period was recorded even lower at 8.85 mt for urea against 9.37 mt last year, 1.93 mt for DAP against 2.92 mt last year, 6.35 mt for MOP against 6.39 mt and 8.98 mt for complexes against 3.96 mt.
Stock prices of fertiliser makers are ruling down since April 1. Gujarat State Fertilisers and Chemicals Ltd fell by close to 24 per cent, while Tata Chemicals lost over 11 per cent since February. Deepak Fertilisers & Petrochemicals Ltd fell by over 13 per cent during the period. While Sensex has lost by 0.88 per cent during the period.
Prices of fertilisers, especially the non-urea variety of DAP and MoP, have been ruling very high throughout the year. Consumption, hence, has stagnated and farmers are using stocked up inventory rather than buying afresh.
"Various state governments have been asked to stock up only need-based requirements and not excess fertiliser following the drought-like condition in this kharif season (July-August). Earlier, they stocked up much in excess," said a central government official.
"This is also to bring down the fertiliser subsidy which the government has to pay once they purchase the stock. This year, since demand was less, the government decided to stock up less fertiliser and order more as and when the need arises."
Apart from the sluggish monsoon, factors such as policy measures for non-urea fertilisers and higher raw material prices adversely affected demand. Lowering of subsidy on non-urea fertilisers led to increase in prices by the companies as high cost of imported raw material left no room for companies to absorb the impact of lowering of subsidy.
"Most of the companies have increased prices in the range of 20-25 per cent since June. Only a few have not passed on the cost burden to the consumers. Margins are strained and demand is low in the current condition," said an industry player.
Companies have not cut prices as they receive subsidy on the market price. They do not want to disturb this at a time when sales are low.
The supply of raw material for DAP, i.e. phosphoric acid, has remained weak, impacting production. "We are importing DAP to meet our requirements. So far, we have imported 100,000 tonnes of DAP, while some more will be imported. Overall consumption for our company has not been impacted so far," informed a senior GSFC official.
"First quarter volumes were impacted mainly due to issues like higher prices for farmers and low demand due to weak monsoon. But from August, demand seems to be picking up as monsoon has been fairly good in the past few days. Rain conditions over the next two months will decide the rabi demand prospects," said an analyst at Edelweiss Financial Services.
According to analysts, profitability for non-urea fertiliser companies may continue to be under pressure due to weak rupee and high raw material cost. Things are not likely to improve much for fertiliser firms before the September quarter.
Rutam Vora & Anindita Dey / Ahmedabad/ Mumbai Aug 29, 2012,
Business Standard
A weak monsoon has not only hampered prospects for farmers, but has also dampened chances of investments in fertiliser companies. Since the start of this financial year, shares of most of the leading firms have lost in the range of 4 to 24 per cent on the BSE, while the benchmark index, Sensex, has remained almost flat with a loss of around one per cent during the period under consideration.
The weakness in the shares is attributed to the sluggish demand on the back of poor monsoon and costly inputs. Overall, monsoon has remained deficient by 16 per cent so far across the country.
According to the balance sheet compiled by the department of fertilisers, ministry of chemicals & fertilisers, during April to August, the sale of all varieties, including the highly used urea, has fallen compared to last year. The requirement of fertilisers through the season was estimated lower.
This included urea at 9.53 million tonnes (mt) as against 12.1 mt in 2011, DAP (diammonium phosphate) at 4.43 mt against 5.77 mt last year, requirement for muriate of potash or MOP at 1.74 mt against 1.35 mt last year and that for complexes at 3.52 mt against 4.17 mt.
The sale of fertilisers during this period was recorded even lower at 8.85 mt for urea against 9.37 mt last year, 1.93 mt for DAP against 2.92 mt last year, 6.35 mt for MOP against 6.39 mt and 8.98 mt for complexes against 3.96 mt.
Stock prices of fertiliser makers are ruling down since April 1. Gujarat State Fertilisers and Chemicals Ltd fell by close to 24 per cent, while Tata Chemicals lost over 11 per cent since February. Deepak Fertilisers & Petrochemicals Ltd fell by over 13 per cent during the period. While Sensex has lost by 0.88 per cent during the period.
Prices of fertilisers, especially the non-urea variety of DAP and MoP, have been ruling very high throughout the year. Consumption, hence, has stagnated and farmers are using stocked up inventory rather than buying afresh.
"Various state governments have been asked to stock up only need-based requirements and not excess fertiliser following the drought-like condition in this kharif season (July-August). Earlier, they stocked up much in excess," said a central government official.
"This is also to bring down the fertiliser subsidy which the government has to pay once they purchase the stock. This year, since demand was less, the government decided to stock up less fertiliser and order more as and when the need arises."
Apart from the sluggish monsoon, factors such as policy measures for non-urea fertilisers and higher raw material prices adversely affected demand. Lowering of subsidy on non-urea fertilisers led to increase in prices by the companies as high cost of imported raw material left no room for companies to absorb the impact of lowering of subsidy.
"Most of the companies have increased prices in the range of 20-25 per cent since June. Only a few have not passed on the cost burden to the consumers. Margins are strained and demand is low in the current condition," said an industry player.
Companies have not cut prices as they receive subsidy on the market price. They do not want to disturb this at a time when sales are low.
The supply of raw material for DAP, i.e. phosphoric acid, has remained weak, impacting production. "We are importing DAP to meet our requirements. So far, we have imported 100,000 tonnes of DAP, while some more will be imported. Overall consumption for our company has not been impacted so far," informed a senior GSFC official.
"First quarter volumes were impacted mainly due to issues like higher prices for farmers and low demand due to weak monsoon. But from August, demand seems to be picking up as monsoon has been fairly good in the past few days. Rain conditions over the next two months will decide the rabi demand prospects," said an analyst at Edelweiss Financial Services.
According to analysts, profitability for non-urea fertiliser companies may continue to be under pressure due to weak rupee and high raw material cost. Things are not likely to improve much for fertiliser firms before the September quarter.
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