Single-digit reduction in NBS rates

3 Nov 2022 , 11:10 AM

Analysts at IIFL Capital Services also expect MRPs to remain stable that would help companies shield profitability. With one of the key concern getting addressed, they believe the focus would now shift to quicker disbursement of subsidies. Spike in raw materials and hence, fertilizer prices during H1FY23, had propelled subsidies to upwards of Rs2.1 trillion for FY23, which slowed down disbursements during Q2FY23. The delayed subsidy payments and a subsequent increase in working capital debt would weigh on profits.

New rates

Subsidy per kg of nitrogen has been raised by 7%, whereas subsidy for phosphate, potash and sulphur has been cut by 8%, 7% and 12%, respectively. The revised rates imply low single-digit reduction to product-wise subsidies, barring ammonium sulphate (AS) which has seen an increase of 5%. These would be effective from 1^st October, 2022 to 31^st March, 2023.

Steeper cuts were much anticipated

Prices of raw material namely Phosphoric Acid, is currently down ~25% from Q2FY23, while Sulphur is down ~46%. DAP too is down ~19%, thus raising expectation of steeper cuts in subsidy for H2FY23. Significant cut in rates would have compelled the players to mark down inventory, which would have eroded profits.

Focus shifts to faster disbursement of subsidies

The government has also approved subsidy of ~Rs519 billion, including support for indigenous fertilizer (SSP) through freight subsidy for the ensuing Rabi season. In April 2022, government had approved ~Rs610 billion subsidy for (P&K) fertilizers for the Kharif season (April-September 2022). Analysts at IIFL Capital Services expect a faster disbursal of subsidies now as delayed subsidy payments had led to increase in working-capital debt and impacted earnings.