0
Home
News
Directory
E-newsletter
Magazine
Events
Data
AgReport
Subscribe
Fertilizer policy tweak won’t enthuse investors
Jul. 2, 2012
At the beginning of the year, the government had recommended a post-tax return on equity of 12-20% at the floor and ceiling price, respectively. “At a gas price of $6.5 per mmBtu for greenfield investments, floor price has been fixed at $310 per tonne and ceiling price at $340 per tonne ($460/tonne and $490/tonne, respectively, at gas price of $14/mmBtu),” pointed a note from Edelweiss Securities Ltd released in February. While the recent draft tries to address the concern on gas price above $14 per mmBtu, it also says the ceiling price will not be increased, and that may disappoint some investors who may not find it lucrative enough.
Of course, the good thing is if the policy is approved by the cabinet, it is likely to add as much as seven-eight million tonnes to domestic urea production capacity, which is likely to bridge the current demand-supply gap. But, obviously, this will take time.
According to analysts, the new urea investment policy is expected to be helpful to companies such as Chambal Fertilisers and Chemicals Ltd and Tata Chemicals Ltd as they have announced new capacity expansion plans. But, of course, the earnings per share addition on account of this is not going to happen any time soon, as it will take some time for companies to come up with new capacities.
At the current market price, the Chambal and Tata Chemicals stocks trade at about eight times their estimated earnings for fiscal 2013 (FY13). While valuations seem attractive, near-term upsides for both the stocks are limited. For one, the hike in urea prices is taking inordinately long. Moreover, subsidy reduction under the NBS (nutrient-based subsidies) policy for FY13, weak local currency and higher inventories in the system do not offer much comfort in the near term.
Source: livemint.com
More from AgroNews
Change
Hot TopicSubscribe
| Subscribe Email: | * | |
| Name: | ||
| Mobile Number: | ||
Comment
0/1200
NEWSLETTER