Majority of fertiliser stocks in the domestic equity market have managed to deliver a robust return to investors during the past one month. On an average, the sector has gained 23.30 per cent since November 21, 2022. On the other hand, the benchmark equity index BSE Sensex increased by 0.91 per cent during the same period.
Top gainers
With a rally of 128.14 per cent, The Fertilisers and Chemicals Travancore (FACT) emerged as the top gainer in the sector. Shares of the company climbed to Rs 292.70 on December 20, 2022 from Rs 128.30 on November 21, 2022. It was followed by Madras Fertilizers (up 91.66 per cent), National Fertilizers (up 56.35 per cent), Nagarjuna Fertilizers and Chemicals (up 46.73 per cent) and Aries Agro (up 38.32 per cent).
FACT reported nearly 297 per cent year-on-year growth in net profit at Rs 144.60 crore in Q2FY23 against Rs 36.45 crore in the same quarter last year.
Top reasons
Analysts believe that the market is anticipating some kind of subsidy in the forthcoming Union Budget. Kranthi Bathini, Equity Strategist, WealthMills Securities said, “Market is expecting some kind of subsidy rise for urea in the upcoming Budget. In addition to this, there will be an export ban or increase of taxes for the Russian exported fertilisers which may impact the global prices.”
Rahul Sharma, Research Head, Equity99 said, “The government is planning to increase the subsidy on urea which will lead to a healthy outlook for the sector. This will help farmers who are facing supply shortages caused by global factors. Also, Russia will impose an export duty of 23.5 per cent on all types of fertiliser with a “cut-off price” set at $450 per tonne.”
Other major gainers
The data further highlighted that other names including Southern Petrochemical Industries Corporation, Rashtriya Chemicals and Fertilizers, Gujarat State Fertilizers & Chemicals, MP Agro Industries, Mangalore Chemicals & Fertilizers, Khaitan Chemicals & Fertilizers, Bharat Agri Fert & Realty, Rama Phosphates and Basant Agro Tech (India) also gained between 10 per cent and 35 per cent in the past one month.
Sharma further added that the sector was not performing well amid margin pressure due to a hike in the price of input costs. However, there is a boom in fertiliser stocks in recent times, all thanks to the usual monsoon in India during FY23 which will enhance the local demand. Also, rising Covid cases in China will impact the global supply situation and it will benefit Indian fertiliser companies.
Financial results
Going ahead market players believe that investors should zero in on the upcoming quarterly results of fertiliser companies. Of late, the combined net profit of the sector increased by around 11 per cent for the quarter ended September 30, 2022 on 62 per cent growth in gross sales. Companies like Madhya Bharat Agro Products, Deepak Fertilisers and Petrochemicals, Krishna Phoschem, Rashtriya Chemicals and Fetilizers, Southern Petrochemical Industries and Teesta Agro Industries reported over 100 per cent year-on-year growth in net profit in Q2FY23.
Stocks to buy
Sharma is bullish on Deepak Fertilisers and Southern Petrochemical Industries from the fertilizer space. “Deepak Fertilisers is set to demerge its mining chemicals and fertilisers businesses with the composite scheme of the arrangement which will enhance the operating efficiency, increase cash flow and fortify the balance sheet of the company.”
Brokerage Prabhudas Lilladher in November gave a ‘Buy’ rating to Chambal Fertilizers & Chemicals and Coromandel International with a target price of Rs 410 and Rs 1,200, respectively. Shares of Chambal Fertilizers traded at Rs 305 on December 20, while Coromandel International was at Rs 925.
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