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Agri Products & Chemicals
FY12 NBS rate notified – Positive on Coromandel
Government notified nutrient‐based subsidy (NBS) rate for FY12: Government
has notified the NBS rate for Phosphatic and Potassic (P & K) fertilisers for FY12.
Government has substantially increased subsidy rate for the primary nutrients
i.e. N (Nitrogen), P (Phosphate) and K (Potash) by 16.9%, 23.1% and 9.3% YoY,
respectively for FY12, while, NBS for S (Sulphur) has been reduced by 5.8% YoY.
With respect to the primary nutrient, subsidy for P & K fertiliser has been raised
from ~Rs1,400/MT (up ~10% YoY) to ~Rs3,600/MT (up ~23% YoY). Further,
FACT, MFL and GNFC will get additional subsidy on account of manufacturing
complex fertilisers using naphtha‐based captive ammonia to compensate higher
input costs till March 2012. These three companies have to convert its raw
material base from naphtha to gas till then.
Government changed NBS for FY12 thrice in the past six months: Finally, the
government has notified higher NBS for FY12, considering higher global fertiliser
prices. During November 2010, Government declared NBS rate cut for FY12 by
~20% v/s FY11 levels in order to negotiate lower input/end product prices with
international suppliers. It has resulted in uncertainty in the profitability of all
companies and ultimately, stock price of all the companies (P & K) has been
corrected by ~30% during November 2010‐February 2011. During February
2011, government has increased the NBS rates for P & K fertilisers for FY12, on
account of the soaring global fertiliser prices. We believe that the government
could revise (upside/downward) the NBS rate further, going forward, considering
any substantial changes in global fertiliser prices and keep a check on its FY12
fertiliser subsidy bill.
Per tonne margin is likely to be intact during FY12: Government has
substantially increased the NBS for FY12 owing to higher end product prices. On
the other hand, key raw material prices (ammonia, rock phosphate, phosphoric
acid etc) have also gone up substantially in line with end product prices. Hence,
we believe that increased subsidy rate will be wiped off by higher raw material
prices. We expect that P & K fertiliser players are likely to maintain its FY12 per
tonne margin. Though, it may be the case that company’s net sales could show
strong growth led by higher NBS rate and gross profit/EBITDA margin (%) would
witness pressure (due to higher sales). However, we expect that companies
would able to maintain its per tonne gross profit/EBITDA margin. We are
positive on Coromandel International because it is an efficient player having
100% linkage for its key raw materials. Chambal Fertiliser and Chemicals and
Coromandel, remain our preferred pick among all fertiliser players.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Agri Products & Chemicals
FY12 NBS rate notified – Positive on Coromandel
Government notified nutrient‐based subsidy (NBS) rate for FY12: Government
has notified the NBS rate for Phosphatic and Potassic (P & K) fertilisers for FY12.
Government has substantially increased subsidy rate for the primary nutrients
i.e. N (Nitrogen), P (Phosphate) and K (Potash) by 16.9%, 23.1% and 9.3% YoY,
respectively for FY12, while, NBS for S (Sulphur) has been reduced by 5.8% YoY.
With respect to the primary nutrient, subsidy for P & K fertiliser has been raised
from ~Rs1,400/MT (up ~10% YoY) to ~Rs3,600/MT (up ~23% YoY). Further,
FACT, MFL and GNFC will get additional subsidy on account of manufacturing
complex fertilisers using naphtha‐based captive ammonia to compensate higher
input costs till March 2012. These three companies have to convert its raw
material base from naphtha to gas till then.
Government changed NBS for FY12 thrice in the past six months: Finally, the
government has notified higher NBS for FY12, considering higher global fertiliser
prices. During November 2010, Government declared NBS rate cut for FY12 by
~20% v/s FY11 levels in order to negotiate lower input/end product prices with
international suppliers. It has resulted in uncertainty in the profitability of all
companies and ultimately, stock price of all the companies (P & K) has been
corrected by ~30% during November 2010‐February 2011. During February
2011, government has increased the NBS rates for P & K fertilisers for FY12, on
account of the soaring global fertiliser prices. We believe that the government
could revise (upside/downward) the NBS rate further, going forward, considering
any substantial changes in global fertiliser prices and keep a check on its FY12
fertiliser subsidy bill.
Per tonne margin is likely to be intact during FY12: Government has
substantially increased the NBS for FY12 owing to higher end product prices. On
the other hand, key raw material prices (ammonia, rock phosphate, phosphoric
acid etc) have also gone up substantially in line with end product prices. Hence,
we believe that increased subsidy rate will be wiped off by higher raw material
prices. We expect that P & K fertiliser players are likely to maintain its FY12 per
tonne margin. Though, it may be the case that company’s net sales could show
strong growth led by higher NBS rate and gross profit/EBITDA margin (%) would
witness pressure (due to higher sales). However, we expect that companies
would able to maintain its per tonne gross profit/EBITDA margin. We are
positive on Coromandel International because it is an efficient player having
100% linkage for its key raw materials. Chambal Fertiliser and Chemicals and
Coromandel, remain our preferred pick among all fertiliser players.
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