Fertiliser and agriculture chemical companies may report muted sales growth in the March 2017 quarter due to the failure of the North-East monsoon, leading to drought-like situations in most parts of Tamil Nadu, Karnataka, Andhra Pradesh and Telangana.
However, the Centre’s decision to clear ₹10,000 crore of fertiliser subsidy arrears would come as some relief for the companies. The Ministry of Chemicals and fertilisers has sought ₹20,000 crore from the Finance Ministry to partially clear the dues and provide liquidity to capital-starved industry.
Under the 2016-17 arrangement, the government borrows from a consortium of banks to pay fertiliser companies. The differential between the prevailing gilt (government security) and market interest rates will be borne by the industry.
The Centre has allocated fertiliser subsidy of ₹70,000 crore for the financial year 2017-18, and plans to disburse it to companies based on actual sales executed through POS (point of sale) machines.
The sowing of crops during the rabi season touched a record high, despite demonetisation. The area under coverage was up six per cent at 65 million hectares, led by wheat, pulses and oilseeds.
Bleak future However, the failure of the North-East monsoon for the last two years has played havoc in the southern States.
Despite record sowing, the use of fertiliser and chemicals in the agriculture sector may remain low in these States.
However, the situation for the fertiliser industry will begin improving this fiscal due to reduction in government subsidy receivables, which will lead to lower working capital debt and lower interest outflow, said Deepak Kolhe, Research Analyst, HDFC Securities.
Monsoons crucial Predictions by different weather forecasting agencies suggest below-normal monsoons this year due to El Nino.
The progress and coverage of the South-West monsoon, which should start in June and remain till September, will be key for the agriculture input companies.
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