Fertiliser Policy Update Urea decontrol – A boon for efficient players n Emkay

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Fertiliser Policy Update

Urea decontrol – A boon for efficient players

n     We believe that proposed urea decontrol (by bringing it under NBS) along with 10% increase in urea prices, subject to CCEA approval, is in favor of efficient urea players 

n     Plants will be divided in five groups for additional subsidy (above fixed subsidy of Rs 4000 / mt) while proposed gas pooling to ensure uniform gas cost for each plant

n     We estimate that incremental profit may vary from -32% (inefficient player) to 147% (for most efficient player) based on our most likely scenario 

n     Increase in earnings along with improved return ratios and decontrol should trigger re-rating of the sector. We reiterate our BUY reco on Chambal and Accumulate on Tata Chemicals

Impact of decontrol on companies under most likely scenario

Companies	Realisation gain/(loss) - Rs/mt	Est profit/(loss) - Rs mn	% of fert EBIT FY10	Impact on Cons PBT FY10	Impact on Cons PBT FY11
Chambal Fert	503	928	24%	29%	27%
DCM Shriram cons	-368	-141	-32%	-11%	na
GSFC	289	110	6%	3%	1%
IFFCO	672	2638	61%	47%	26%
Indo Gulf Fert	2029	2009	147%	63%	18%
Nagarjuna Fert	1017	1429	74%	128%	72%
Tata Chem	2089	2000	57%	21%	18%

Source: Capitaline, Emkay Research