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Indian fertiliser firms stare at Rs 1,000 crore loss
May. 7, 2013
Indian fertiliser companies, saddled with huge inventories, are staring at a Rs 1,000 crore loss as the government has reduced subsidies on certain fertilisers to bring their domestic prices in line with the depressed international prices.
About 6 million tonne (mt) of complex fertilisers – di-ammonium phosphate (DAP) and other nitrogen, phosphorus and potassium (NPK)-based fertilisers – were lying with the fertiliser firms at the start of the current fiscal as offtake was low due to poor monsoon.
The companies, which include Iffco, Coromandel International, Zuari International, Chambal Fertilisers, would now have to sell at reduced prices.
The Union Cabinet on May 1, while accepting the proposal of the Ministry of Chemicals and Fertilisers, announced a new slashed nutrient-based subsidy for NPK and sulphur for fiscal 2013-14, reducing the per-tonne subsidy on DAP and muriate of potash by 15% from the last year prices.
The government has also asked the companies to fix the maximum retail price (MRP) reasonably and furnish their cost data. If the price is not found to be reasonable, the companies may be restricted or denied the subsidy. Bulk of the raw material of fertiliser firms is imported.
The stern stand was taken because the companies were not allegedly passing on the fall in costs internationally to consumers.
With this, the fertiliser-makers would now have to slash the prices by a similar amount and take a hit on inventory carried over from last year, for which higher costs were incurred.
“The industry loss could cross Rs 1,000 crore if the inventory in the system is more than 6 mt… we have already decided to go ahead and absorb the loss and hence will be selling our inventory at the new slashed prices,” said Rakesh Kapoor, joint managing director and director – finance, Iffco, India’s biggest fertiliser manufacturer.
Iffco, which has carried over an inventory of close to 1.5 mt from last fiscal, has already announced a cut in prices of DAP and NPK-based fertiliser by Rs 1,500 and Rs 1,300 per tonne respectively.
“While it is a good move and will help in reducing the price of DAP and other complex fertilisers in the current year and help in reducing government subsidy burden, it is the inventory which will have to take a hit as poor monsoon last year led to a collection of some 6 mt of fertilisers,” said an analyst with a domestic brokerage.
The Cabinet has also decided that the reasonability of MRP of P&K fertilisers fixed by the companies in 2012-13 would also be looked into by the government for making recovery of subsidy, wherever necessary.
Source: DNA LandMarks
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