Agriculture is the thrust area globally. With global economy on a roll led by high density populated countries like China and India, rising income levels and more population coming out of the below the poverty line, demand for basic food item, which is on a consistent rise, is likely to go up further.
Most of the Indian agricultural input-fertilisers stocks are not finding favour in the markets due to unfavorable government regulations. In the long run this sector is likely to perform with government initiatives to boost the sector and rising food demand. In the short term, the trigger for the sector lies with the prospects of good monsoon this year, as forecasts from initial estimates reveal. The June-to-September rainy season will be 95 percent of the average reported between 1941 and 1990, a level considered normal, according to the Indian Weather office.
Prices of wheat, lentils and other agricultural products have risen twice as fast as manufactured goods in the past year giving farmers better affordability to plant more crops this year. Higher grain prices will encourage farmers to plant more crops, bolstering demand for fertilizer and other agri-inputs. Agricultural growth slowed to 2.7 percent in the year ended March 31 from 6 percent in the previous year, which has prompted the Indian government to focus in the farm sector. Indian government is also under pressure to ensure supply of food grains not only from the point of supply of food grains for the entire population but also to bring down food prices, to curtail inflation.
Foreign companies eye India
Yara International ASA of Norway, which is the largest nitrogenous fertilizer company in the world is eyeing India, world's third-largest fertilizer market. The company is looking for expansions with locations closer to faster-growing markets such as India. (Source: Bloomberg). The company said last week that it will form a venture with India's Krishak Bharati Cooperative Ltd to produce and market mineral fertilizers. The company said that the joint venture's objective is to establish an Indian production base by acquiring existing production facilities, combined with import.
Indian Fertilizer Industry
Indian agricultural sector has witnessed increased demand for fertilizers. There are large no. of fertilizer companies in the country, such as Chambal Fertilizers, Coromandel Fert, Deepak Fert, Godavari Fert, GNFC, GSFC, Nagarjuna Fert, United Phosphorus, Tata Chemicals, National Fert.RCF,manufacturing a wide range of nitrogenous,phosphatic and complex fertilizers. The most widely used fertilizers include nitrogenous (N), phosphatic (P) and potassic (K). Potassic fertilizer is not manufactured in India and is imported. The installed capacity of fertilizer industry in the country is about 12 m MT of nitrogen and 5.1 MT of phosphatic nutrients. Urea (85% of N fertilizer consumption) constitutes 58% of the total fertilizer consumption in the country. Di-ammonium phosphate (DAP) accounts for approximately 66% of India's consumption of phosphatic fertilizers. The prospects of the fertilizer business depend largely on Government policy. Indian fertilizer industry is globally competitive but the policies of the Government need to be changed. With decontrol and direct subsidization likely to come in future, the potential of the sector is likely to be unleashed in future.
Formidable barriers to entry and oligopolistic conditions of large players in India, the threat of new entrants is minimal.
The Central government has increased the allocation for fertiliser subsidy from Rs 172.5 billion to Rs 224.5 billion in the Union Budget 2007-08; but the consequent increase in subsidy arrears is likely to further strain the working capital of fertiliser companies. However, greater emphasis on agricultural credit and irrigation would boost fertiliser consumption in the long run.
Shortage of gas supply: Key concern The critical shortage of gas supply is likely to be resolved
going forward. Companies within the sectors like RCF reiterated that they are hopeful of partly meeting the current shortage in gas supply. Industry players, as reported in leading dailies, are negotiating with concerned government departments over the availability of gas for fertilizer companies.
Except a few players within the sector, most stocks have underperformed market (Nifty) in the last four years.
These stocks would find favor with change in favorable policies towards the sector in the long run.
Ajay Jaiswal (Investment Strategist) -Kolkata
From Angle Broking report dated 28 April 07
Most of the Indian agricultural input-fertilisers stocks are not finding favour in the markets due to unfavorable government regulations. In the long run this sector is likely to perform with government initiatives to boost the sector and rising food demand. In the short term, the trigger for the sector lies with the prospects of good monsoon this year, as forecasts from initial estimates reveal. The June-to-September rainy season will be 95 percent of the average reported between 1941 and 1990, a level considered normal, according to the Indian Weather office.
Prices of wheat, lentils and other agricultural products have risen twice as fast as manufactured goods in the past year giving farmers better affordability to plant more crops this year. Higher grain prices will encourage farmers to plant more crops, bolstering demand for fertilizer and other agri-inputs. Agricultural growth slowed to 2.7 percent in the year ended March 31 from 6 percent in the previous year, which has prompted the Indian government to focus in the farm sector. Indian government is also under pressure to ensure supply of food grains not only from the point of supply of food grains for the entire population but also to bring down food prices, to curtail inflation.
Foreign companies eye India
Yara International ASA of Norway, which is the largest nitrogenous fertilizer company in the world is eyeing India, world's third-largest fertilizer market. The company is looking for expansions with locations closer to faster-growing markets such as India. (Source: Bloomberg). The company said last week that it will form a venture with India's Krishak Bharati Cooperative Ltd to produce and market mineral fertilizers. The company said that the joint venture's objective is to establish an Indian production base by acquiring existing production facilities, combined with import.
Indian Fertilizer Industry
Indian agricultural sector has witnessed increased demand for fertilizers. There are large no. of fertilizer companies in the country, such as Chambal Fertilizers, Coromandel Fert, Deepak Fert, Godavari Fert, GNFC, GSFC, Nagarjuna Fert, United Phosphorus, Tata Chemicals, National Fert.RCF,manufacturing a wide range of nitrogenous,phosphatic and complex fertilizers. The most widely used fertilizers include nitrogenous (N), phosphatic (P) and potassic (K). Potassic fertilizer is not manufactured in India and is imported. The installed capacity of fertilizer industry in the country is about 12 m MT of nitrogen and 5.1 MT of phosphatic nutrients. Urea (85% of N fertilizer consumption) constitutes 58% of the total fertilizer consumption in the country. Di-ammonium phosphate (DAP) accounts for approximately 66% of India's consumption of phosphatic fertilizers. The prospects of the fertilizer business depend largely on Government policy. Indian fertilizer industry is globally competitive but the policies of the Government need to be changed. With decontrol and direct subsidization likely to come in future, the potential of the sector is likely to be unleashed in future.
Formidable barriers to entry and oligopolistic conditions of large players in India, the threat of new entrants is minimal.
The Central government has increased the allocation for fertiliser subsidy from Rs 172.5 billion to Rs 224.5 billion in the Union Budget 2007-08; but the consequent increase in subsidy arrears is likely to further strain the working capital of fertiliser companies. However, greater emphasis on agricultural credit and irrigation would boost fertiliser consumption in the long run.
Shortage of gas supply: Key concern The critical shortage of gas supply is likely to be resolved
going forward. Companies within the sectors like RCF reiterated that they are hopeful of partly meeting the current shortage in gas supply. Industry players, as reported in leading dailies, are negotiating with concerned government departments over the availability of gas for fertilizer companies.
Except a few players within the sector, most stocks have underperformed market (Nifty) in the last four years.
These stocks would find favor with change in favorable policies towards the sector in the long run.
Ajay Jaiswal (Investment Strategist) -Kolkata
From Angle Broking report dated 28 April 07
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