Tuesday, March 5, 2013

End of an era, fertilizers again!

After a decadal starvation of investments, Indian fertilizer industry is hot again in the books of investors and seems ready for a great run in the days to come. Before that, it will have to deal with its chronic problem of lack of feedstock.

For the past couple of months Indian fertilizer sector, which was almost missing from newspapers for around a decade now (except for the burgeoning size of government subsidies, shut down of fertilizer plants one after the other, and of course increasing import bill for fertilizers) has been all over media again. While a new plant set up by Chambal Fertilizers and Chemicals in 1999 was the last time something positive had hit the headlines (believe it or not, since then the country has not seen a single new large fertilizer plant till date), now there is a flurry of announcements (be it Oman Oil pumping in investments to the tune of $3 billion into India’s fertiliser sector or analysts forecasting that the investment-starved industry is now set for a wave of Rs.470 billion) indicating that the whole scenario has changed. What is more surprising is that even the existing ones, which had gone into their shell are now acting bullish and are set to expand their capacity in a jiffy. So, in short, the tables have turned and Indian fertilizer industry is hot again. But the million dollar question is, why now? How is it that a sector, which did not receive almost any investment over the past decade, has suddenly topped the chart of many investors?

Two of the clear cut reasons are no-brainers: basically, the rising demand and higher dependency on imports. As per the latest data available with the Department of Fertilizers (Ministry of Chemicals and Fertilizers), over the past decade while the country’s total consumption of fertilizers has shot up to 24.9 million MT in FY 2009 from 16.7 million MT in FY01, the country’s total production of fertilizers has actually gone down by 2.7% from 14.7 million MT to 14.3 million MT. As a result, in FY09, 21% of the urea, 67% of phosphorus-based fertilizers, and 100% of potash-based fertilizer sold in India was imported resulting in an import of 10.15 million MT of fertilizers during the particular year. This clearly indicates the fact that domestic manufacturers now face real low-volume off-take risks and this has been one of the major reasons for fertilizer manufacturers to gear up their production plans in India. S. Garg, Director, Fitch Ratings India, says to B&E, “The government has historically tried to match fertilizer manufacturing capacity with domestic demand, but a large gap has emerged between demand and supply as no large greenfield capacity has been added in the last 10 years. This has clearly resulted in a higher dependence on imports.”


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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