Latest News | NPK Subsidy Rate Revision Positive for Fertiliser Sector: Ind-Ra

Mumbai, Apr 29 (PTI) The recent hike in the subsidy for NPK fertilisers to Rs 60,900 crore for the first half of this financial year, which is way above the budget for this year, is a positive step for the fertiliser sector, India Ratings and Research (Ind-Ra) said in a report.

Around Rs 42,000 crore was budgeted for this year's fertiliser subsidy, Ind-Ra said in a report.

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The international rates of key fertilisers (urea, diammonium phosphate (DAP) and muriate of potash (MoP)) have increased significantly over the past year, the report stated further.

This hike in subsidy is significant as the government considered the international prices prevalent in the fourth quarter of FY22 rather than relying on yearly historical average prices that will help in insulating farmers from such high input prices, Ind-Ra said.

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Further, NPK rates are applicable for 1H FY23 leaving room for a further nutrient-based subsidy (NBS) rate revision during 2H FY23 depending on the price situation and the farmer income is likely to see an uptick if there is a rise in minimum support price (MSP) of crops resulting in greater cash flows, it said.

The report also added that the subsidy applicability is retrospective from April 1, 2022, despite the notification being released on 27 April 2022.

Ind-Ra opined that the credit profile of NPK players thus would be protected and is unlikely to deteriorate as absolute cash flows are expected to remain in line, although margins in percentage terms may reduce.

While the margins of players on a per tonne basis post the subsidy revision in FY23 could remain the same, the overall EBITDA margins in percentage could fall to around 7 per cent from 12 per cent, the Ind-Ra report noted.

However, since cash flows would be protected, the credit metrics are unlikely to deteriorate, it added.

Additionally, the revision is applicable from April 1, 2022, therefore, the players will also remain cushioned against inventory losses stemming from procurements done during the fourth quarter of FY22 for the upcoming Kharif season, it stated.

There could be some impact on credit metrics in case of further price escalations, which players are unable to pass through, or an increase in the subsidy receivables if the required budget revisions are not timely, it added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)