Decontrol of phosphatic and complex fertiliser prices has triggered foreign investors' interest in fertiliser makers like Chambal Fertilisers, Coromandel International and Rallis among others.
Foreign institutional investors (FIIs) have increased their exposures to fertiliser stocks in the recent quarters. This is even as they have pruned their holdings in interest rate-sensitive sectors such as auto, capital goods and infrastructure among others.
RCF sees big jump
Rashtriya Chemicals and Fertilizers Ltd (RCF), in which the Government owns 92.5 per cent, has seen the biggest jump in FII holding. The FIIs have more than tripled their stake to 0.19 per cent of the total holding over past two quarters.
Analysts attribute the rising FII interest in fertiliser firms mainly to the decontrol of non-urea fertiliser prices last year. The Government, last fiscal, had brought all non-urea fertilisers under the Nutrient Based Subsidy (NBS) regime and freed them from price controls. This has provided pricing power for fertiliser firms and helped them post better profit margins.
Free pricing
“The impact is visibly evident in the past four to five months when the prices of fertilisers such as DAP (diammonium phosphate) have shot up and the Government has not interfered,” said Mr Tarun Surana, Research Analyst at Sunidhi Securities.
Prices of DAP have shot up from Rs 12,000 per tonne to Rs 18,200 per tonne in the past four to five months, Mr Surana said. The monsoon-dependent fertiliser sector is largely considered defensive in nature in line with FMCG and consumption segment. “Good monsoons this year has resulted in strong demand,” Mr Surana said.
Urea decontrol
“FIIs start accumulating whenever they anticipate some big announcement. Since there is talk of urea decontrol, which may happen next year, they are accumulating fertiliser stocks and will continue to do till it (decontrol) happens,” said Mr Kishore P. Ostwal, CMD, CNI Research.
Urea is the only fertiliser that remains under Government control. The Group of Ministers in August had referred the urea decontrol policy to the Cabinet Committee on Economic Affairs. Reports suggest that the Prime Minister's Office has directed the Fertiliser Ministry to accelerate the urea decontrol policy, amidst resistance from the Fertiliser Minister, Mr M.K. Azhagiri, to the proposed move.