• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Aarati Krishnan

FERTILISER stocks, which witnessed a brief surge between March and June 2002 on expectations of a "normal" monsoon and a change in the fertiliser policy, have since dropped. After a promising start to the year, DAP and other complex fertiliser manufacturers have turned in an unimpressive financial performance in the six months ended September 2002.

The year 2001-02, though not exceptionally good, was a reasonable one for the industry . Thanks to higher volume offtake, the stronger players such as Coromandel Fertilisers, Zuari Industries and EID Parry ended the year with reasonable sales growth. But the downward revision in concession rates appears to have dented profit margins. The players began the 2002 kharif season (April-September) with opening stocks that were 19 per cent lower than the previous year's levels. However, the poor monsoon in the initial months of the kharif season severely dented DAP sales. As a result, April-September 2002 sales were around 20 per cent lower than in the same period last year and manufacturers saw the kharif season end with an inventory pile-up of 10.44-lakh tonnes, 36 per cent higher than in the previous year. Poor offtake has a twofold impact on the companies: Inventory carrying costs puts pressure on the margins. And, as the concession paid by the Government to manufacturers is based on sales, and not output, the net realisation of manufacturers have been lower.As a result, most manufacturers of DAP and complexes reported sharply lower sales and profits in the first six months of 2002 . Manufacturers could still make up a part of the lost sales in the rabi season (October-March), if the sowing progresses smoothly and the north-east monsoon is normal. Apart from the uncertainty about rabi performance, the current financials of the players do fully capture their financial situation. With the Government failing to notify a concession rate for the industry for June and September 2002, a majority of the players have finalised their half-year results on the basis that the previous concession rate would continue. If the actual notification is different from what is assumed, it may have to a one-time impact on the players.

Shareholders of leading complex fertiliser companies can hold on to their investments. Divestment to a private sector player could unlock the upside potential for holders of stocks such as Madras Fertilisers and Godavari Fertilisers. A majority of the players could also benefit from a revival in rabi prospects. From a long-term perspective, the recent restructuring in the industry and the promised streamlining of the subsidy mechanism certainly puts some of the stocks back on the "wait-and-watch", if not the "buy", list. Coromandel Fertilisers and EID Parry are two stocks which may emerge investment worthy once the near-term uncertainty subsides. However, fresh investments are not recommended at this juncture.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Aventis CropScience: Accept

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line