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ICRA Says Cautious on Fertiliser Sector Growth in FY16

Published: 02nd July 2015 08:45 PM  |   Last Updated: 02nd July 2015 08:45 PM   |  A+A-

By PTI

MUMBAI: The volume growth of the fertiliser sector appears cautious in the current financial year due to prospects of a weak monsoon, but the regulatory changes announced by the government are positive for the industry, ICRA Research today said.      

"Although actual rainfall and monsoon precipitation so far has been significantly better than earlier estimates of Indian Meteorological Department... growth outlook for the industry appears more cautious for FY16," ICRA said in a report.  

It said the growth will largely depend on the regional distribution of rainfall in addition to the overall magnitude.   

While urea sales will not be significantly impacted and may post a minor 1-2 per cent growth to 31-31.5 million tonnes during FY16, the phosphorous and potassium (P&K) segment is more vulnerable to monsoon and economic forces like rupee fluctuation and prices of key raw materials, among others, the report said.   

"The performance of fertiliser industry in near-term will depend on the magnitude and spatial distribution of the monsoon during kharif season.    

"However, subdued energy price environment augurs well for the industry although volatile currency and prices of imported raw material for P&K fertilisers remain a concern. The subsidy delays are expected to continue in 2015-16, which will affect the financial risk profile of the players," ICRA Research Senior Vice President and Co-Head, Corporate Ratings, K Ravichandran said.        

Regarding the host of policy initiatives taken by the Centre, he said they may not lead to an immediate improvement in financial performance of the sector, though they are broadly positive for the overall industry.        

"The implementation of gas pooling for the urea industry from June 2015 would incentivise competition among the industry players based on their energy efficiency.           

"It would positively impact individual players, who did not have access to low-cost domestic gas, while it will negatively impact players who were primarily using domestic gas for urea production."       

Besides, he said, the new policy does away with the major impediment for setting up new urea plants, gas supply at reasonable cost, providing visibility on gas availability and prices.   



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