ICRA expects fertiliser companies to report healthy profitability in FY21E

The rating agency, ICRA, in its latest report, has stated that the fertiliser companies are likely to register healthy profitability in the current fiscal year on the back of robust fertiliser off-take by the farmers in Q1FY21 as well as healthy growth across segments.

The sales volume of urea fertiliser recorded a robust annual growth of 69 per cent, di-ammonium phosphate (115 per cent), complexes (120 per cent), Muriate of potash (70 per cent) and single superphosphate (43 per cent).

The agency believes that owing to the nationwide lockdown, dispatches were affected as some fertiliser plants were closed and the labour shortage added further to the woes.

The report further said the subsidy inflow from the government, however, has been slow after a sizeable chunk being paid out in April. Due to the lower subsidy inflow in May and June, the working capital requirement is likely to increase amid higher fertiliser sales, which in turn, will lead to borrowings for meeting the working capital requirements.

However, due to higher market collections than the previous periods, the phosphatic fertiliser companies are better placed in terms of the liquidity position, given a smaller component of subsidy of their overall realisation (30 per cent).

Meanwhile, urea players might witness a significant increase in the working capital borrowings as subsidy forms a major portion of 70 per cent of their realisations. Going forward, the agency believes that due to the lower subsidy budget for the ongoing fiscal, the working capital requirement of fertiliser companies in the second half of FY21 would be at an elevated level, which in turn, will lead to the moderation of the credit profile.