Budget and Agriculture sector

2 Feb 2023 , 11:22 AM

• Fertiliser allocation for NBS (relevant for Coromandel International and other complex players) is down 38% from revised estimates to Rs 440bn, while for Urea (relevant for Chambal and other urea players) is down 14.9% from revised estimates to Rs1.3trn. Although the cut in allocation looks steep (much steeper for NBS) and would be taken negatively for complex players, government has been supportive of the Fertiliser industry and has been revising allocation throughout the year in the past. Hence, we do not take this negatively for the sector. Lower allocation is also on the back of expected benefits from the cooling-off of key inputs viz. ammonia, phosphoric acid and fertiliser prices like urea.
• For Agriculture sector overall, there are no significant positives from the Budget. Expenditure on Agriculture & Allied Activities has gone down from ~Rs4.7trn (RE) to ~Rs3.5trn (BE 23/24), largely driven by a ~Rs900bn decrease in budget for food subsidy and a ~Rs270bn decrease to non-urea subsidy.
• The FM stated intention of setting up an “agriculture accelerator fund” to encourage start-up by entrepreneurs. The fund will aim to bring innovative and affordable solutions for farmers.
• The Agriculture credit target has been increased to ~Rs20trn with focus on animal husbandry, dairy and fisheries.
• The FM also highlighted plans to launch PM PRANAM to incentivise states and union territories, for promoting alternative fertilisers and balanced use of chemical fertilisers.
• Basic Customer Duty on import of shrimp, feed raw materials such as fish meal, krill meal; and mineral and vitamin premixes have been reduced from 15% to 5%. BCD on fish lipid oil and algal prime, has been reduced from 30% to 15%. However, benefits are not significant, as most of the players source their requirement locally.

Analysts of IIFL Capital Services believe neutral impact of the budget announcements on the agriculture sector.