The Indian fertilizer industry is seeing green shoots after two years of low margin business, thanks to lower gas prices and appreciation of the rupee, coupled with lower input prices.Analysts and industry representatives estimate the industry’s net margins to improve conservatively to 5.5% in FY18 from 4.9% in FY17 and 2.7% in FY16.
The improvement in profit margins is being attributed primarily to pooling of gas, which is a major input that helped in lowering costs. This was also aided by an appreciation in the rupee which has lowered input costs for the companies. Experts cite this as a positive for the industry and expect improvement in the financials of companies.
According to Care Ratings, the financials of 17 fertilizer companies including Coromandel International, Gujarat Narmada Valley Fertilisers Company and Guj arat State Fertilisers & Chemicals witnessed a 13% jump in net profit margins in the first quarter of FY18.
“The appreciation of the rupee has helped reduce the import cost of inputs which were already on the lower side in international markets due to higher production.Further, lowering of gas prices since the gas pooling policy came into effect on July 2015 has helped improve the financials of the companies in a major way,“ said Urvisha H. Jagasheth, research analyst, Care Ratings.
While natural gas prices, one of the major inputs in fertilizer production, has reduced from $5.05 MMBTU in November 2014 to $2.48 MMBTU in April 2017, the rupee appreciated from 67$ in FY17 to 64.45$ in the first quarter of FY18, the rating agency said.
Higher prices of natural gas of $4-$5 MMBTU from FY14 to FY15 had been hurting the industry in the past few years. “Natural gas prices had gone up during 2013-14 largely due to derivation from higher oil prices, lesser domestic gas extractions, shifts of coal based power stations to natural gas in developed world. These factors contributed to subdued supply of gas for fertiliser companies, resulting in lower production, higher costs,“ said Ravi Kataria, founder and managing director, Investment Imperative.