Monsoon revival gives a boost to Indian fertilizer stocks

Fertilizer stocks have been in the limelight, thanks to the monsoon covering most parts of the country as on date, said market experts.

"The onset of a good monsoon this year will provide impetus to sectors related to food, especially fertilizers,” said Mr Anil Advani, Head of Research, SBI CAP Securities.

With the Government contemplating deregulation in urea pricing and the prospect of gas becoming available at priority rates, fertilizer companies that make urea will be in the limelight.

Manufacturing costs would come down by 15 per cent and EBITDA margins and hence return on equity would go up, resulting in upward re-rating of fertilizer sector stocks, said the head of PMS business at an Indian AMC.

Once pricing deregulation is done, experts expect entry of private players with abundant gas supply linkages to the urea business.

Increasing competition is expected to drive prices down, say analysts. Imports of urea will also fall, said the analysts.

India imports 50-60 per cent of its urea requirement.

"The complex fertiliser business comprising DAP and MOP is expected to see increase in dispatches, going forward,” said Ms Neha Sarwal, an analyst covering the fertiliser sector at Dolat Capital, an institutional broking house.

New policy

Urea players are set to benefit under the new policy — NPS IV — that is now expected to be unveiled by the end of September. The urea business will see an increase in off-take by 10-15 per cent year-on-year, said Ms Sarwal.

Raw material costs for urea business will go up by 5 per cent, she added.

In fact, the working capital-intensive fertiliser sector would see an unlocking of Rs 400-600 crore as fertiliser companies can now liquidate the fertiliser bonds issued by the Government.

Experts said the stocks to watch out for are Chambal Fertilizers, RCF, GSFC, Coromandel International and Zuari.