Phosphoric Acid, Phosphates & Fertilizers Experts

Fertilizer makers see improved financials with falling interest outgo

HYDERABAD: Most fertiliser companies saw sizeable improvement in their financials last fiscal because of lower working capital requirement, declining interest rates and an effort by the government to clear fertiliser subsidy arrears.

The Rs 10,000-crore special banking arrangement announced by the government for fertiliser companies in February also helped, analysts and industry executives said.

According to data by Investment Imperative, there has been an improvement of 200 basis points in the average EBITDA (earnings before interest, tax, depreciation and amortisation) margins of the industry— from 5% to 7%—in the past fiscal due to a 10% decline in cost of production owing a similar decline in fuel cost.

According to K Ravichandran, senior vice-president, corporate ratings, ICRA, the top-10 listed fertiliser companies saw a 64% improvement in profit just in Q4 on account of lower interest cost and the special banking arrangement.

Companies like Gujarat Narmada Valley Fertilizers and Chemicals, National Fertilizers Limited and Rashtriya Chemicals Fertilizers are among the companies that saw finance cost, on an annual basis, fall to Rs 203 crore, Rs 189.75 crore and Rs 93.98 crore, respectively, in FY17, from Rs 296 crore, Rs 228.42 crore and Rs 145.27 crore, respectively, in FY16.

Rajiv Kumar Gupta, managing director of GNFC, said, “The past fiscal was the best performing year for us as we reported PBT of Rs 715 crore for FY17, which is 167% higher against PBT of Rs 268 crore in FY16. This growth was achieved mainly due to our robust performance and faster subsidy clearance as compared with the previous years, apart from the special banking arrangement.”

The improvement follows the introduction of gas pooling facility for urea manufacturing units in March 2015. Urea is most widely used fertiliser in the country. Gas pooling enabled fertiliser units get gas, a key raw material, at a lower and uniform prices.

“With the gas pooling policy, and an increasing number of fertilizer units shifting to gas-based production rather than crude oil, they are seeing nearly 10% decline in costs that has helped improve the average margins,” said Ravi Kataria, managing director, Investment Imperative.

Further, the introduction of New Urea Policy 2015 to promote energy efficiency in urea units has helped reduce the subsidy burden on the government. The improvement was also aided by reducing interest costs.

“Companies’ interest costs declined by around 100 basis points just in Q4FY17, as banks were flush with money due to demonitisation. Moreover, highly rated companies have been able to tap the commercial paper (CP) market at attractive rates,” said Ravichandran of ICRA.

According to experts, rates have been revised downwards four times in the past two fiscals.
The government has also been very active in clearing outstanding subsidies. While there was an outstanding subsidy of nearly Rs 35,000 crore in FY16, it came down to nearly Rs 20,000 crore last fiscal.