Fertiliser stocks: budget a non-event

Fertiliser stocks saw mixed reaction in trade today with shares of urea producers ending the the day in red, while that of complex fertiliser makers’ managed to  close on a positive note. Though the changes were not significant, some divergent trend was discernable.

Within the urea pack, Chambal Fertilisers lost the most closing 2.75 per cent lower than on Friday, followed by National Fertilisers and RCF which shed between 1 and 2 per cent. On the other hand, most phosphatic fertiliaer makers with the exception of Coromandel  and GNFC (flat to down marginally) ended the session in green. Paradeep Phosphate’s stock zoomed 4.1 per cent, while GSFC gained 1.8 per cent.   

With respect to the budget announcements for the fertiliser sector, there were two key developments.

While fertiliser stocks initially buzzed on the news of a new 1.2 million tonne urea plant in Assam, it is important to note that this will not have any positive impact on the domestic urea producers. This move will largely benefit the Government by way of reducing import dependence and forex saving. India’s current production of urea is at around 31 million tonne, with some small deficiency bridged through imports.  Since the urea imports are currently channelised through the private and public sector fertiliser makers, reduction in imports, will mean lower trading revenue for urea manufacturers who also distribute imported urea. However, there is no near term impact as the urea from the new plant will take some time to come on stream.   

Along expected lines

Secondly, the budgetary allocation for fertilisers is another important data point to be noted in the budget. Traditionally, the market tends to react to the budgetary allocation changes. Nevertheless, with fertilisers being an essential commodity and a highly subsidised input, the initial budgetary allocation doesn’t matter as the government can always increase the allocation. In the past too, the revised estimates have been higher than the budget estimates. This year, the budget allocation for urea is at ₹1 lakh crore, just 0.5 per cent higher, about ₹500 crore more, than last year. The revised allocation for FY25 is higher at ₹1.01 lakh crore. However in the past years this has changed according to swings in major feedstock costs and hence there will be no negative impact on the producers.

For phosphatic and potassic fertilisers the budget allocation is higher by 13.2 per cent compared to last year’s allocation. This could possibly be one of the reasons for the positive movement in complex fertiliser makers’ stock prices. However, any reaction to allocation is unwarranted as Government will ensure timely and appropriate subsidy payments to producers to ensure availability of fertilisers.

The above two factors apart, lack of major reform for the fertiliser industry as a whole to encourage fresh investment, to make the plants more energy efficient, given that gas and crude based products are key feedstocks, could be viewed as a mild disappointment .