Page 196 - CW E-Magazine (9-7-2024)

Special Report

Credit profi le of fertiliser players to remain comfort-

able in FY25

The credit profi le of fertiliser gas prices and reduction in other raw average: $974/tonne, $213/tonne,
players will remain comfortable in material (phosphoric acid, rock phos- $335/tonne).
FY25, driven by the government of phate, sulphur, etc.) prices is expected
India’s (GoI) continued policy-level to keep the budgetary allocation Led by the decline in natural gas
support to the industry by way of the suffi cient for FY25. price, Ind-Ra estimates the subsidy re-
healthy subsidy budget of Rs. 1,640-bn. quirement for the sector to come down
This is backed by a moderation in Gas price to remain moderate from the FY24 levels. Ind-Ra estimates
raw material prices across urea and Ind-Ra expects the average pooled a Re 1 per $ depreciation would lead
nutrient-based fertilisers starting gas price to remain moderate at $10-13/ to an Rs. 215/tonne increase in the
4QFY23, coupled with the likeli- MMBtu in FY25 (FY24: $17/MMBtu), subsidy burden and every $1/MMBtu
hood of a continued healthy demand led by: decrease in the pooled gas price would
in view of the GoI’s focus to increase  A moderation in the Henry Hub lead to an Rs. 1,721/tonne decrease,

farmer income. Prices and of corresponding linked assuming a weighted average energy
imported LNG; consumption of 5.826-Gcal/tonne.
“Ind-Ra expects the credit pro-  Relative stabilisation in the average Similarly, for NBS subsidy, Ind-Ra
file of fertiliser players to remain prices of crude oil, leading to lower expects the announced levels in the
comfortable in FY25, backed by the prices on the term LNG contracts budget to remain suffi cient, given the
continued policy-level support with based on the slope of Japan Crude decline in key input prices.
adequate subsidy allocations and Cocktail/Brent;
timely subsidy payouts; gas prices  Cabinet approval of the Kirit Parekh Margins for manufactured NPK

also are expected to remain largely Committee, leading to a moderation products to marginally improve
stable, leading to stability in urea in the administered price mechanism Ind-Ra expects EBITDA/t margins
profitability across the sector. The prices; and for manufactured NPK products to
NPK segment profitability is likely  Cooling off of the spot LNG prices. marginally improve in FY25, led by

to improve yoy during the year, led the decline in the input prices and the
by a moderation of input prices and RLNG formed 85% of the total corresponding reduction in NBS sub-
adequate subsidy outlay. Overall, the consumption by the fertiliser sector in sidy rates, while the farm gate prices
credit profile is likely to marginally FY24 (FY23: 79%). The RLNG share could remain stable. The inventory
improve,” said Bhanu Patni, Asso- has increased, led by the increase in the losses faced by players in FY23-FY24
ciate Director, Corporate Ratings, use of natural gas, given an increase are expected to normalise in FY25.
Ind-Ra. the gas requirement, led by the opera- However, for urea manufacturers, the
tionalisation and ramp-up of the new margins/tonee directly depend upon
Suffi cient budgetary allocation for FY25 urea plants; and diversion of any incre- gas prices and exchange rate. Given
Demand in the fertiliser sector re- mental domestic gas being produced Ind-Ra’s expectations for a sustenance
mained robust in FY24, led by higher towards the higher priority city gas in gas prices in the current range,
availability of funds with farmers due distribution sector. the absolute EBITDA earned by urea
to various policy measures, and stable players is anticipated to remain stable.
farm gate prices. Moreover, the sec- Declining prices for input raw
tor over the past 2-3 years has seen material Credit metrics to remain stable
supplementary budgetary allocations Furthermore, for nutrient-based Ind-Ra expects the credit metrics of
as and when the prices of key input fertilisers, the average prices for in- the rated sector companies to remain
materials were increased to enable raw put raw material such as phosphoric stable in FY25, led by stable EBITDA
material availability and economic viabi- acid, rock phosphate and sulphur expectation from the urea segment, im-
lity with producers and importers. This have started to decline from 4QFY23, proved EBITDA from NPK segment,
is likely to continue in FY25 as well. declining to $968/tonne, $203/tonne continued lower working capital debt
This coupled with stability in natural and $150/tonne, respectively (FY24 requirements and modest capex plans.

196 Chemical Weekly July 9, 2024

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