India may be gearing up for a record agricultural output this year, but domestic fertiliser makers are unhappy. That is reflected in the industry’s gross under-performance on the bourses over the past one year, with most companies having shed between 10% and 60% in value. There may be some improvement in sight, but hardly adequate to make any significant impact on the industry's fortunes.
Sales volumes of the fertiliser industry have been under pressure of late. Provisional data released by the fertiliser ministry shows that total fertiliser sales in the April–June 2013 quarter were down 10.2% compared to year ago. Volumes fell for de-controlled fertilisers, while urea volumes grew 6% to 5.9 million tonne.
“Failure of monsoon last year led to lower sales, which has led to carry forward of higher inventory of finished fertilisers in the current fiscal. This, in turn, would again impact production levels in the current year,” says G Chokkalingam, chief investment officer at Centrum Wealth Management.
Volumes are still down, but a better monsoon is helping companies liquidate their inventory, with urea sales jumping 27% y-o-y in the single month of June 2013. Even non-urea volumes showed a marked improvement in June on a sequential basis. A note from Edelweiss Securities says that non-urea production volumes grew 3.7% y-o-y in June 2013 after 15 straight months of decline, with the only exception of December 2012.
A recent report from brokerage house Prabhudas Lilladhar also says that their channel checks revealed an improved traction for fertilisers in past one month. The area sown has increased to 518 lakh hectares as compared to 342 lakh hectares at this time last year, the report says. The industry is also battling worsening working capital cycle. “Over . 30,000 crore of subsidy for FY13 was not cleared to the fertiliser companies impacting their balance sheets,” says Centrum’s Chokkalingam. A fall in the rupee over the past two years will also bloat the working capital needs of the industry, according to him. In other words, although the uptick in volumes is a good indication, the sector won’t benefit in the near term.
“We believe short-term challenges persist for the industry due to excessive channel inventory,” says an Edelweiss report. It expects manufactured volumes to pick up, but traded volumes to take a hit. “The underperformance by the sector is likely to continue till the government comes up with strong measures towards mounting subsidy burden on the fertiliser companies,” says Ajit Mishra, assistant vice-president, equity retail research, Religare Securities. Centrum’s Chokkalingam advises investors to stay away from the sector at least in the near term. “Investors can actually wait for June 2013 quarter results, which are expected to turn out poor for many companies,” he says.
Sales volumes of the fertiliser industry have been under pressure of late. Provisional data released by the fertiliser ministry shows that total fertiliser sales in the April–June 2013 quarter were down 10.2% compared to year ago. Volumes fell for de-controlled fertilisers, while urea volumes grew 6% to 5.9 million tonne.
“Failure of monsoon last year led to lower sales, which has led to carry forward of higher inventory of finished fertilisers in the current fiscal. This, in turn, would again impact production levels in the current year,” says G Chokkalingam, chief investment officer at Centrum Wealth Management.
Volumes are still down, but a better monsoon is helping companies liquidate their inventory, with urea sales jumping 27% y-o-y in the single month of June 2013. Even non-urea volumes showed a marked improvement in June on a sequential basis. A note from Edelweiss Securities says that non-urea production volumes grew 3.7% y-o-y in June 2013 after 15 straight months of decline, with the only exception of December 2012.
A recent report from brokerage house Prabhudas Lilladhar also says that their channel checks revealed an improved traction for fertilisers in past one month. The area sown has increased to 518 lakh hectares as compared to 342 lakh hectares at this time last year, the report says. The industry is also battling worsening working capital cycle. “Over . 30,000 crore of subsidy for FY13 was not cleared to the fertiliser companies impacting their balance sheets,” says Centrum’s Chokkalingam. A fall in the rupee over the past two years will also bloat the working capital needs of the industry, according to him. In other words, although the uptick in volumes is a good indication, the sector won’t benefit in the near term.
“We believe short-term challenges persist for the industry due to excessive channel inventory,” says an Edelweiss report. It expects manufactured volumes to pick up, but traded volumes to take a hit. “The underperformance by the sector is likely to continue till the government comes up with strong measures towards mounting subsidy burden on the fertiliser companies,” says Ajit Mishra, assistant vice-president, equity retail research, Religare Securities. Centrum’s Chokkalingam advises investors to stay away from the sector at least in the near term. “Investors can actually wait for June 2013 quarter results, which are expected to turn out poor for many companies,” he says.
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