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Rating agency ICRA in its latest report has said that profitability for phosphatic fertiliser players are expected to improve at the current nutrient-based subsidy (NBS) rates, given the decline in input prices. For urea players also, the energy efficient plants are likely to benefit from higher energy savings given the elevated pooled gas prices.

According to the report, the international fertiliser prices, which along with the key raw material prices, had witnessed a sharp uptick, driven by strong crop prices, healthy demand, and the ongoing geo-political issues amid limited supplies of some of the fertilisers, which have now started to moderate. This is due to weakness in international demand at such elevated prices. It said subsequent to the price rise, the government of India (GoI) revised the NBS rates substantially, even as the same remained inadequate as the prices kept on rising to lead to moderation in the profitability of phosphatic fertiliser players. Now with the softening in prices, the government has also revised the NBS rates downwards with effect from October 1, 2022.

The report further said the current fiscal started with a budgetary subsidy allocation of Rs. 1.05 lakh crore, which was subsequently increased to Rs. 2.14 lakh crore as against the requirement of around Rs. 2.5 lakh crore. It expects the government to allocate additional subsidies to ensure adequate fertiliser availability for the farmers and a healthy credit profile of the incumbents. It said there were some delays in subsidy clearances in the first half of the current fiscal, which along with elevated prices, had kept the working capital requirements high for the industry. It added that while a major chunk of the subsidy was cleared in the last couple of months, resulting in lowering the subsidy outstanding, the current fiscal will witness elevated interest costs for the industry.