Fertiliser stocks up on reports of new urea investment policy

MUMBAI: Shares of fertiliser companies moved higher on reports that the fertiliser ministry agreed to the new urea investment policy. The new policy is aimed at boosting urea production in India and it seeks to give urea manufacturers a minimum 12 per cent post-tax return on capital.

At 09:50 a.m., shares of Rashtriya Chemical and Fertilisers moved up 2.47 per cent, Fertilisers and Chemicals Travancore gained 2.86 per cent, National Fertilizers was up 2.41 per cent, Zuari Industries rose 1.16 per cent and Chambal Fertilisers advanced 0.35 per cent.

The new policy proposes companies be compensated if gas prices exceed $14 per million British thermal units (mmBtu), according to reports.

The government recently deferred the fertiliser ministry's proposal to hike the retail price of urea by 10 percent to Rs 5,841 per tonne for FY2013.

"The proposal to hike urea prices was made to redress the imbalanced use of soil nutrient and to reduce the subsidy burden of the government. In 2011-12, indegenious urea and imported urea contributed Rs 20,300 crore and Rs 17,475 crore, respectively, to the fertiliser subsidy bill.

The government's decision not to increase the price of urea will not affect the financials of the urea manufacturers because any increase in the variable cost shall be fully compensated by the government as urea is still under government control," a Sharekhan report noted.

If the draft policy is accepted by various government departments and ministries, it will help in increasing urea production by around 8 million tones, according to reports.