Since the Union Budget, the fertiliser sector has been in the news. A number of proposals, including the extension of the nutrient-based subsidy (NBS) scheme to urea and the one to consider capital investments in the sector as infrastructure investment, have brought the sector into the limelight.
Analysts said these moves would encourage more investments. Also, all the good news has led to a spike in most fertiliser stocks. Since the Union Budget, their stock prices have risen 8-27 per cent.
The sector got another boost last week on reports the government was considering buying back fertiliser bonds worth Rs 14,000 crore. During FY08 and FY09, bonds worth Rs 27,500 crore were issued by the government to compensate for subsidies. However, most companies sold around half of their bonds at a loss to raise funds. Coromandel and Zuari booked losses of Rs 24.3 crore and Rs 13.3 crore, respectively, on sales of bonds earlier, analysts say. While the former held bonds worth Rs 1,000 crore, Zuari held those worth Rs 900 crore.
With this buyback proposal, the government may compensate companies for these losses as well, which will be a welcome move, analysts say. Buying back bonds will help reduce the recurring interest costs and positively impact profitability due to write back of losses provided earlier.
According to analysts at Edelweiss, the one-time EPS (earnings-per-share) benefit would be around 9-14 per cent for Zuari Industries, Coromandel International and Chambal Fertilisers. Recurring cash flow and EPS benefits are pegged around 5-10 per cent for the three fertiliser majors.
Additionally, in March, the government revised the benchmark prices for the calculation of subsidy on some nutrients under NBS. This benefited all complex fertiliser players who would have taken a hit on profitability due to the rising global fertiliser prices. Sageraj Bariya, an analyst at Angel Broking, suggests one can remain invested in the non-urea sector stocks, given the valuations.
