Monsoon forecast a respite for fertilizer industry, but risks remain

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subsidy rate and its timely payment are important variables that determine the financial performance of companies. “Lower NBS (nutrient-based subsidy) rates during the second half of the year were not commensurate with the raw material prices, and therefore, impacted the operational viability of the phosphatic players in the industry," said the management of Coromandel International Ltd in its March quarter earnings call. FY25 is expected to be a strong year for the sector with an increase in subsidy from ₹20.8 per kg in the second half of FY24 to ₹28.7 per kg in the first half of FY25.

The MSP hike of up to 12.5%, announced last week, would also spur higher sowing. Additionally, the industry awaits a decision on the parliamentary panel's recommendation to exempt the fertilizer sector from GST. However, with limited upside on pricing, fertilizer companies are undertaking backward integration to lower their production cost.

Coromandel is investing ₹1,000 crore to expand its capacity of phosphoric acid and sulphuric acid, key input materials, to be completed by early FY27. This would reduce the company's dependency on purchased phosphoric acid to 25% from the current 50% and generate additional EBITDA of ₹350 crore, as per a report by Antique Stock Broking. It has also purchased a stake in a rock phosphate mine.

Paradeep Phosphate Ltd is constructing a sulphuric acid plant, expected to be commissioned in FY26, which would increase its Ebitda by about ₹700 per tonne, currently at ₹4,500 per tonne. Companies are also trying to increase their sales from non-subsidy-based related segments such as crop protection chemicals, even as their contribution would remain at less than 5% in the near term. For now, investors are