Strong sales growth on the cards

IN FOCUS / FERTILISERS

Fertiliser companies can look forward to yet another sunny season ahead with healthy sowing taking place for the rabi season.

The Centre for Monitoring Indian Economy (CMIE) expects the agriculture segment to grow by one per cent from the previous year. Consequently, the fertiliser segment is set to gain.

This is despite a deficient monsoon this year that has pulled down the agricultural production in the kharif season of 2004 in some region.

The demand for fertilisers however, remained buoyant and is expected to see an average annual growth of 10 per cent for the next three to four years fuelled by increasing demand, said analysts.

According to the department of fertilisers, the demand for fertilisers in the rabi season is estimated to be 114 lakh tonne. It is however, expected to outstrip the supply which is pegged at an approximate 106 lakh tonne.

The growth in the segment is entirely hinged on the Centre's pricing policy for natural gas, which is used as a feedstock. It is preferred in the manufacture of urea due to it's high energy efficiency.

Urea accounts for roughly 60 per cent of the total fertiliser production in the country.

The wholly government controlled segment is likely to see steady growth in spite of higher prices with the rising cost of production.

It would however put further pressure on the government, which takes on the cost incurred through the subsidies. In addition, urea capacities are already working efficiently so their scope for enhancement is limited.

Two of the most efficient producers - Tata Chemicals and Indo Gulf Fertiliser Limited - have already approached the government to remove the capping on capacity utilisation on the urea units to cater to the increasing demand.

Other players are also looking at de-bottlenecking as a solution to increase the production. The non-nitrogenous segment is on the other hand, expected to see a better bottom line growth, working under a more de-controlled system.

The government's decision to take on the increased prices of phosphoric acid that rose from roughly $340 per tonne last year to $395 has eased the strain on the margins of the companies. Besides, all the companies are seeing higher sales in the primary segment, which has largely reduced the freight costs.

Currently Madras Fertilisers Limited and Fertilisers And Chemicals Travencore are loss making due to heavy debt.

In spite of the heavy regulations, analysts point out that the industry is seeing a healthy rise in consumption from all sides.

The growth is driven by increased usage , especially of diammonium phosphate (DAP) in northern, western and southern regions.

The eastern region remains the only segment with minimal growth in use of fertilisers this year. This is attributed to the heavy floods that struck north-east India.

The Indian fertiliser sector is expected to be regulation-free by 2008, but industry experts predict certain hurdles to the process, going by the Centre's foothold in the industry.

In a global fertiliser industry worth roughly $40 billion, India stands third in terms of production and consumption after China and the US.

The global consumption of fertilisers has been growing steadily over the last several years at 1-2 per cent. Developing countries account for almost 60 per cent of consumption up from a mere 12 per cent 30 years ago.