Apr’13 ‐ Complex fertiliser sales decline by 50%; urea up by 6% YoY :: Prabhudas Lilladher

Preliminary data from the Ministry of Fertilisers indicates that sales volumes of
overall complex fertilisers (incl. manufactured & traded) declined by 50% YoY for
the industry during Apr’13. On the contrary, urea sales increased by 6% YoY during
the same period. Imported complex fertilisers witnessed decline of 56% YoY during
Apr’13 as companies refrained from importing due to delay in subsidy fixation as
well as huge inventory in system. Similarly, manufactured complex fertiliser
volumes declined by 47% YoY during Apr’13. While we expect urea demand to
remain steady, complex fertiliser sales continues to remain under pressure due to
wide differential in urea v/s complex fertiliser prices and huge inventory in system.
Though few companies have already announced reduction in farm gate prices of
complex fertilisers, the bigger challenge is the existing inventory in system which
will be sold at reduced prices. Our channel checks/interactions with industry
suggest that major portion of the loss will have to be borne by the companies.
However, companies have already passed significant part of the reduction in the
form of dealers discounts, promotional offers etc. We maintain ‘BUY’ on Chambal
Fertilisers and ‘Accumulate’ on Coromandel, GSFC, Tata Chemicals, and Deepak
Fertilisers.
! Complex fertiliser sales continue to face demand headwinds: Preliminary
volumes data for Apr’13 indicates that sales volumes of overall complex
fertilisers (incl. manufactured & traded) declined by 50% YoY for the industry.
On the contrary, urea sales increased by 6% YoY during the same period.
Complex fertiliser sales continue to face demand headwinds due to windfall
increase in their prices over the last two years. Our channel checks suggest that
farmer is reluctant to purchase complex fertiliser at such high prices despite his
crop economics remaining favourable.
! Reduction of farm gate prices on existing inventory has emerged as a new
problem for industry: Complex fertiliser industry, which was already grappling
with the slide in demand and consequent build-up of inventory, is now facing
another challenge. Though few companies have already announced reduction in
farm gate prices of complex fertilisers, the bigger challenge is the existing
inventory in the system which will be sold at reduced prices. Our channel
checks/interactions with industry suggest that major portion of the loss will
have to be borne by the companies. However, companies have already passed
significant part of the reduction in the form of dealer discounts, promotional
offers etc. during the last few quarters.

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