Fertilizer stocks rally up to 8% as government hikes subsidy

Shares of fertiliser companies rallied up to 8% in Thursday’s session after the Centre hiked the subsidy on DAP fertiliser. In a bid to ensure the availability of the soil nutrient to the farmers at old rates despite a sharp rise in prices globally, the Centre hiked the subsidy by 140%. The move will cost additional Rs 14,775 crore to the exchequer.

Analysts do not see any major impact of the subsidy on the balance sheet of fertiliser companies. Shares of Shiva Global Agro Industries rose 7.77% to Rs 41.60 apiece on the BSE at around 9.40 am (IST). On the other hand, the benchmark Sensex dropped 43 points, or 0.09% to 49,859.

Basant Agro Tech (India), National Fertilizers, Fertilizers & Chemicals Travancore (FACT), Rashtriya Chemicals & Fertilizers (RCF), Chambal Fertilisers, Madras Fertilizers, Nagarjuna Fertilizers and Coromandel International also advanced 4%-5%.

The decision to increase the subsidy was taken at a high-level meeting chaired by Prime Minister Narendra Modi, according to a PMO statement.

“Government is committed to improving the lives of farmers. Therefore, despite the increase in global prices, we have decided to make available the fertiliser at the old rate,” Modi tweeted in Hindi.

After urea, Di-ammonium Phosphate (DAP) is the most widely used fertiliser in the country.

“A historic decision was taken to increase the subsidy for DAP fertiliser from Rs 500 per bag to Rs 1200 per bag, which is an increase of 140 per cent. ….With today’s decision, farmers will continue to get a DAP bag for Rs 1200,” the Prime Minister’s Office (PMO) said.

Despite the rise in international market prices of DAP, it has been decided to continue selling it at the old price of Rs 1,200 per bag, it said.

“The central government has decided to bear all the burden of price hike. The amount of subsidy per bag has never been increased so much at once,” it added.

The government spends about Rs 80,000 crore on subsidies for chemical fertilisers every year. With the increase in subsidy for DAP, the government will spend an additional Rs 14,775 crore as subsidy in the Kharif season of this year, it said.

In the meeting, the Prime Minister “stressed that farmers should get fertilisers at old rates despite the international rise in prices”, the statement said.

“DAP consumption in India is around 10 million tonnes of which 5 million tonne is domestically produced and rest is imported. Reduction in prices would benefit farmers while there will be increase in the subsidy burden on the company. However, we do not expect it to have a major impact on the balance sheet of fertiliser companies,” ICICI Securities said in a note.

Other fertiliser majors including GSFC, Zuari, GNFC, Bharat Agri Fert were also up between 1%-3%.

(With inputs from PTI)