Complex fertiliser volume to grow at 2-4 pc amid geopolitical issues: Crisil Ratings

Mumbai, Oct 9 (PTI) Volume growth of complex fertilisers is expected to slow down to 2-4 per cent in this financial year from 9 per cent last year amid import constraints, geopolitical headwinds and a high-base effect, a report said on Thursday.

Crisil Ratings in the report stated that supply disruptions have also led to a rise in raw material prices, which in turn may increase the subsidy requirement.

However, credit profiles are seen stable because of steady profitability, expected additional subsidy allocation and its timely disbursement, said the report.

"Volume growth of complex fertilisers is seen slowing to 2-4 per cent this fiscal after a strong 9 per cent print last fiscal because of availability issues with imported fertilisers, ongoing geopolitical disruptions and high-base effect," the report said.

Complex fertilisers account for a third of the overall domestic fertiliser consumption of which nitrogen phosphorus potassium (NPK) grades comprise 55 per cent and di-ammonium phosphate (DAP) comprises the rest. While NPK is largely indigenously produced, around 60 per cent of the DAP requirement is met via imports.

Further, the report stated that key raw materials for both NPK and DAP are primarily imported due to limited domestic reserves. Given such high import dependence, sales growth as well as the mix is primarily influenced by the supply side factors, it added.

In FY25, geopolitical uncertainties, including export curbs by China, which accounts for a third of India's imports, impacted DAP availability globally.

This led to a surge in imported DAP prices making such imports unviable, said the report.

Meanwhile, domestic manufacturers prioritised NPK production, which is fungible with DAP production, due to better cost economics, it stated.

This impacted the supply of DAP, which saw a steep decline of 12 per cent on year in volumes, while NPK volumes surged 28 per cent.

"On the high base of last fiscal, the NPK volumes are expected to grow 4-6 per cent this fiscal, supported by an adequate monsoon. In contrast, DAP volumes are expected to remain flat as prices remain high, though availability is expected to improve..

"This will be supported by additional special compensation for DAP imports by the government, alternative arrangements such as a long-term agreement with Saudi Arabia, and easing trade tensions with China. Over the rest of this fiscal, NPK demand is expected to normalise as the trend of DAP degrowth reverses with increased availability," Crisil Ratings Director Anand Kulkarni said.

Crisil Ratings further said that geopolitical issues seen last fiscal also resulted in a significant increase in prices of raw materials.

However, the healthy demand growth for NPK grades, backed by good monsoon and an increase in area sown in the kharif season, has allowed players to pass on increased raw material prices after factoring in the announced subsidy for the period, it said.

For DAP, the government has continued with additional subsidy support to reimburse increased raw material costs, added the report.

Therefore, overall profitability for complex fertiliser makers this fiscal is likely to remain in line with last fiscal, with Ebitda projected at Rs 4,800 per tonne, it said adding that manufacturers are integrating backwards to ensure stable profitability..

"There is a likely shortfall of Rs 8,000-10,000 crores in subsidy against the initial budgetary allocation of Rs 49,000 crore for complex fertilisers this fiscal. Nevertheless, incremental subsidy allocation by the government, as seen in the past, will keep working capital requirements of the complex fertiliser manufacturers steady and support their credit profiles," Crisil Ratings Associate Director Nitin Bansal added. PTI SM MR