CRISIL Ratings in its latest report has said that domestic sales volume of complex fertilisers will revert to the historical growth rate of 4-5% in fiscal 2025 following a strong 7-8% jump in this fiscal, driven by expectations of a normal monsoon and stable retail prices.
According to the report, lower volatility in raw material cost will support commensurate nutrient-based subsidy (NBS) by the government and help improve operating profitability of manufacturers to a normalised level of about Rs 4,000-4,500 per tonne next fiscal after a decline this fiscal. That, along with timely release of subsidies - in line with the trend seen in past few years - will keep working capital requirements low for fertiliser makers and credit profiles stable. However, it said profitability, will see a sharp cut this fiscal before rebounding in the next.
For complex fertiliser makers, the report said profitability is typically a function of raw material input prices, commensurate NBS rates and retail sales prices. NBS rates are typically revised bi-annually, in sync with raw material input prices, to keep the retail prices for farmers largely stable. This results in largely stable profitability. The story has been different this fiscal. Declining raw material prices in the first half led to a slashing of NBS rates for diammonium phosphate (DAP) and nitrogen, phosphorus and potassium (NPK) grades by 40% for the second half. However, it said contrary to expectations, prices of raw materials such as phosphoric acid, ammonia, rock phosphate and sulphur subsequently rose and are higher than first-half levels.
