Near term outlook will remain challenging for Indian fertiliser players

MUMBAI: Near term outlook will remain challenging for Indian fertiliser players owing to subdued demand and higher channel inventory, said Edelweiss.

Overall fertiliser dispatch volumes declined 0.6% YoY during October – December 2016, on account of erratic monsoon, depressed farm income and liquidation of channel inventory. While urea volumes grew 1.4% YoY, non-urea fertiliser volumes dipped 3.2% YoY. Manufactured non-urea volume declined 6.3% YoY. However, traded volumes were up 2.4% YoY.

“From our interactions with industry players, we gathered unfavorable costs and price dynamics have led to rising di-ammonium phosphate (DAP) imports (up 33.3% YoY) YTD, primarily during first half of FY 2016” said a note by Edelweiss. “It led to build up of high channel inventory during Kharif season on account of adverse market conditions.

ET Fertilisers index which gained nearly 8% during the quarter October-December 2015, fell nearly 6% since the beginning of the year. Stocks such as Rashtriya Chemicals, Fertilisers & Chemicals, Coromandel International and Mangalore Chemicals & Fertilisers have declined by over 10% since January 1.

Players are liquidating channel inventory at 5-7% discount in the ongoing Rabi season, according to Edelweiss. However, correction in fertiliser prices globally will likely to benefit industry, going forward, it said.

For the quarter ended December 31, 2015, Edelweiss expects revenues and EBITDA margins to be lower YoY following dip in non-urea volumes and adverse currency movement.