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Resilience, rains, risks, and returns

 

Key messages

  • Demand
    • Rose 2% on-year in fiscal 2023, with the government compensating higher input costs through increased subsidy payouts
    • Growth outlook remains relatively flat this fiscal amid evolving threat of El Niño
  • Supply
    • 20% of urea requirement will need to be imported despite ~8 million tonne of capacities commissioned between fiscals 2017 and 2023 
    • 35-40% of non-urea requirement also to be imported, with continued high import dependence on key raw materials
    • Nano technology could replace imports - its efficacy and pace of adoption will be critical
  • Profitability
    • Urea, while immune to volatility in natural gas prices in the recent past, will see range-bound margins owing to tighter energy norms and under-recovery of fixed costs
    • Adequate Nutrient-Based Subsidy (NBS) and easing global prices will ensure profit of the non-urea segment at comfortable levels
  • Subsidy receivables
    • Requirements may surpass the budget allocation of Rs 1.75 lakh crore this fiscal, given allocations for the kharif season
    • Additional budgetary allocation is likely this fiscal, in line with past trend of timely governmental support
  • Credit profile
    • Timely subsidy payouts and no major capital expenditure (capex) plans will keep credit profiles of players comfortable