Ind-Ra: Subsidy clearance a game changer for fertiliser cos, outlook upped to “positive”

The authorities’s transfer to clear the subsidy backlog is a game changer for the fertiliser business, India Ratings and Research mentioned on Monday, revising up the sector’s outlook to “positive” in FY22 from “stable”. (authentic) Earlier, the central government had allotted a further Rs 62,600 crore fertiliser subsidy within the revised funds estimate for FY21, the rating agency famous.

“This is likely to clear the sector’s entire subsidy backlog and free-up significant working capital funds,” India Ratings and Research mentioned in a observe.

Additionally, fertiliser demand is probably going to stay wholesome in view of the Union authorities’s focus to improve farmer revenue and the sector corporations’ reasonable capex plans, it mentioned.

The fertiliser sector witnessed a 10 per cent improve in gross sales throughout April-February in FY21 as in contrast to the identical interval a yr in the past, led by increased availability of funds with farmers due to the assorted coverage measures within the wake of the COVID-19 pandemic, increased sowing and acreage, early arrival of monsoon and higher labour availability owing to labour migration to rural areas, it mentioned.

The change in outlook is pushed by expectations of a significant enchancment in credit score metrics owing to the extra money inflows of pending subsidy receivables and the ensuing discount in working capital debt, it mentioned.

The ranking outlook would encourage the business to take measures to additional enhance their working efficiencies, it added.

A majority of the fertiliser entities it charges have already witnessed a significant discount of their subsidy receivables and dealing capital debt ranges throughout H2FY21 which is probably going to proceed in FY22 as nicely, the company mentioned.

The company mentioned it expects optimistic ranking actions within the fertiliser sector throughout FY22, and added that no COVID-19 associated ranking actions have been taken throughout FY21.

From a profitability perspective, it mentioned working margins for fertiliser corporations will proceed to stay comfy in FY22 after the restoration seen in FY21.

However, the latest spike in worldwide costs of key uncooked supplies like phosphoric acid, rock phosphate, ammonia, coupled with increased pure gasoline costs might marginally suppress the profitability of NPK producers throughout FY22, given the restricted capacity to absolutely cross on the value improve to farmers, it mentioned.

An increase within the pooled gasoline value coupled with stricter power effectivity norms throughout FY22 might additionally scale back the financial savings in addition to improve working capital necessities, and in essence lead to increased borrowing and curiosity prices, it mentioned.

The clearance of subsidy backlogs and discount in working capital necessities might be greater than enough to compensate for the elements which is able to put stress on the margins, it added.