Q2 show belies fertiliser cos’run up on bourses

MOST fertiliser stocks are on a dream run on the bourses over the past one month, appreciating up to 50% during the period and 120% in case of National Fertilisers. This euphoria is mainly driven by expectations about a better future.
However, the optimism is not reflected in the September quarter results of these companies. If at the aggregate level the figures appear unattractive, that is mainly due to the two loss-making heavyweights — Southern Petrochemicals Industries (SPIC) and Fertilisers and Chemicals Travancore (FACT). Most of the other companies have reported healthy performances by improving upon their past.
The group of 21 listed fertiliser posted an aggregate net sales growth of just 6.4% during the quarter to Rs 11,248 crore. Operating margins improved marginally, thanks to reduction in raw materials, power and fuel expenditure while staff and other costs increased.
The loss-making fertiliser manufacturers, SPIC and FACT, witnessed significant fall in sales. Another important company to post a fall in net sales was Chambal Fertilisers. In contrast, GNFC, RCF, Godavari Fertilisers and Coromandel Fertilisers outperformed their peers in sales growth.
Gains on fluctuations in foreign exchange helped the industry report a 39% rise in other income. The resultant PBDIT was 12.7% higher, which translated into 17.3% growth at PBT level on account of slower growth in interest and depreciation. The bottomline growth at the aggregate level was a slower 13.6% at Rs 565 crore, as the tax provisions rose more than proportionately.
GNFC, National Fertilisers, Chambal Fertilisers and Godavari Fertilisers were the star performers during the quarter with PAT growth exceeding 45% on y-o-y basis. Smaller companies such as Asian Fertilisers, Liberty Phosphates and Shiva Fertilisers also put up an impressive show. On the other hand, the performance of companies such as Nagarjuna Fertilisers and RCF was disappointing with fall in profits. SPIC, FACT, Bharat Fertilisers and Rama Phosphates continued to incur net losses.
In the past, a number of fertiliser companies used to derive profit growth mainly from their non-fertiliser businesses. However, during September quarter, Tata Chemicals and GNFC — fertiliser firms which have strong presence in non-fertiliser chemicals — saw the fertiliser division outperforming that of chemicals.
FACT’s disastrous performance too, was on account of heavy losses in its petrochemicals business, while its fertiliser business partially curtailed losses during the quarter. On the contrary, the performance of Deepak Fertilisers improved only because it cut down on its fertiliser business.
The industry is waiting for a new lease of life once the supply of natural gas improves. The government has mandated urea manufacturing units based on fuel oil or naphtha to convert to natural gas by 2010 under the third stage of the new pricing scheme for urea. Considering the ever-rising subsidy burden along with the pending subsidies of earlier years, the government has decided to issue fertiliser subsidy bonds worth Rs 7,500 crore.