Domestic complex fertiliser manufacturers are expected to post a decline of around 10 per cent on-year in operating profitability to Rs 3,200-3,300 per tonne in fiscal 2025, stated a report by CRISIL Ratings. The decline will be due to lower realisations amid higher-than-expected raw material prices, however, the report maintained, they will recover most of it next fiscal on the back of an expected softening of raw material prices.
CRISIL Ratings analysed players comprising around 45 per cent of domestic sales to release the findings. Despite volatility in profits, CRISIL Ratings said that the credit profiles will remain healthy, backed by strong balance sheets and absence of any significant subsidy buildup.
Profitability in complex fertilisers is a function of three factors – input cost, nutrient based subsidy (NBS) rates decided by the government, and retail sales prices. Given India’s significant import dependence, NBS rates are in sync with international raw material costs to keep prices stable for farmers. However, given that NBS rates are typically announced for a six-month period, there can be a lag in alignment of subsidy with the costs, especially amid the volatility in prices of imported raw material seen over the past few fiscals.
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The impact of such a lag this fiscal is visible in diammonium phosphate (DAP), the second-highest selling fertiliser in India, the report said. DAP has seen around 11 per cent cut (on average) in its subsidy realisation this fiscal, with the same retail prices. Meanwhile, its input cost has remained either similar or marginally higher, leading to weak returns for manufacturers. Importers have been impacted even more, given the recent uptick in international DAP prices. This is despite government intervention via additional compensation of Rs 3,500 per tonne applicable for the first nine months of this fiscal.
Anand Kulkarni, Director, CRISIL Ratings, said, “Historically, operating profit of complex fertiliser manufacturers has been at Rs 3,500-4,000 per tonne.
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