X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Fertilisers: Uncertainty looms large - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 27, 2001

    Fertilisers: Uncertainty looms large

    Though urea de-control has been talked of since 1990s it remains a distant dream for the fertiliser industry, especially for the efficient players. The finance minister in his last budget speech assured complete de-control of urea by 2006. However, till the time this happens there is absolutely no incentive for efficient players to stay in business.

    Currently, the GoI controls the final selling price of Urea. The current selling price, termed as the farm gate price is fixed at Rs 4600 per ton, excluding local levies. The difference between the sale price and the retention price (the cost of production as assessed by the government plus reasonable return on net worth) is paid as subsidy to the individual manufacturing unit.

  • Read more on how Retention Price works

    Since the government decides the retention price on a cost plus model, there is no reward for efficiency. No wonder the subsidy bill of the government on fertilisers has shot through the roof reflecting a rise in production cost of urea. More importantly, fertiliser prices being a politically sensitive issue, successive governments have shown reluctance in raising the selling price of fertilisers over the years. Apart from the retention price subsidy the government also bears equated freight subsidy. Imported fertilisers are also subsidized.

    The production cost of fertiliser units varies depending upon the age of the unit, feedstock used, capacity utilization, cost of inputs etc. In regard to producers price, the finance ministry recently, announced replacement of existing unit-wise Retention Pricing Scheme (RPS) by a group-wise concession scheme. To put it in simple terms, the government would continue to fix urea prices, only difference being, instead of plant wise price fixing, the retention price would now be determined based on fuels used by plants viz., whether the plant is run on gas, naphtha, fuel oil or on mixed fuels.

    As is apparent from the above chart, most of the Naphtha and coal based are highly unviable if the current farm gate prices are considered to be a benchmark. Considering this, only new gas based urea plants are expected to survive in the long run. There are only two options available to the government to reduce the burgeoning fertiliser subsidy bill. One is to let inefficient units die a natural death or increase the selling price of urea, which is a politically sensitive issue and hence the government is not expected to take an immediate stand on that. Meanwhile, the fertiliser consumption levels in the country remain one of the lowest in the world.

    While the uncertainty of the government policy looms large over the industry trapped in regulatory issues, efficient producers (for e.g. Indo-Gulf) have nothing but a hope that there would be light at the end of the tunnel.

     

     

    Equitymaster requests your view! Post a comment on "Fertilisers: Uncertainty looms large ". Click here!

      
     

    More Views on News

    Tata Chemicals: Lower Finance Costs Boost Profits (Quarterly Results Update - Detailed)

    Jun 2, 2017

    Tata Chemicals registers 54.2% YoY rise in net profits during fourth quarter of FY17 on the back of lower finance costs and rise in other income.

    Tata Chemicals: Urea division dampens performance (Quarterly Results Update - Detailed)

    Nov 18, 2016

    Tata Chemicals has reported consolidated topline fall of 17% YoY while the bottomline has fallen 5% YoY

    Tata Chemicals: Operating margins catalyze strong profit growth (Quarterly Results Update - Detailed)

    Aug 18, 2016

    Tata Chemicals has reported consolidated topline fall of 9% YoY while the bottomline has grown 40% YoY.

    Tata Chemicals: Consolidated profits down substantially (Quarterly Results Update - Detailed)

    Mar 2, 2016

    Tata Chemicals has reported consolidated topline fall of 4% YoY while the bottom line has fallen 45% YoY

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
  •  

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS