Press Release
April 10, 2017 | Mumbai
New NBS rates credit neutral, profitability of fertiliser players to sustain
DBT to be a booster of credit profiles over the long term: CRISIL
The revision in nutrient-based subsidy (NBS) rates for fiscal 2018 announced recently will not impact the operating
profit margins of fertiliser players, which had risen 75-100 basis points in fiscal 2017 following a sharp fall in the
prices of key raw materials such as phosphoric acid and ammonia over the past 12 to 15 months.
While the new NBS rates may have left room to reduce retail prices of di-ammonium phosphate (DAP, 18:46:0)1,
and some other commonly used phosphatic fertilisers such as 20:20:0, 12:32:16 and 15:15:15 by Rs 500 to Rs
1000 per tonne, an expected rise in contracted phosphoric acid price, ammonia prices and international DAP
prices will preclude any correction.
On the other hand, a sharp reduction in the subsidy for the ‘K’ (potash) nutrient will mean players may have to
increase the price of muriate of potash by Rs 1,000 per tonne – after having had to reduce it by Rs 5,000 per
tonne in fiscal 2017.
Says Subodh Rai, Senior Director & Head Analytics, CRISIL Ratings: “While the revision in NBS rates is
credit-neutral for phosphatic fertiliser players, the introduction of the direct benefit transfer (DBT)
scheme, if successfully implemented, will be a credit positive in the long term. DBT has potential to
reduce the government’s subsidy bill by curtailing leakages and diversion of fertilisers to other uses,
which, in turn, will enable the government to clear subsidy dues without changing subsidy allocation and
improve working capital cycle of players.”
In the interim, DBT may temporarily elongate the working capital cycle of fertiliser players because at present
subsidy is payable to them on dispatch of material from plant, while DBT subsidy would be payable once sale is
registered at a retail outlet through a point of sale machine. However, the implementation of DBT is expected to
be gradual given the challenges such as inadequate support infrastructure. Hence the impact is expected to be
muted.
CRISIL-rated large manufacturers are likely to sustain profitability at the improved levels in fiscal 2018 with
minimal impact on working capital cycle because of the flexibility to manufacture different grades of complex
fertilisers, backward integration, ability to negotiate favourable phosphoric acid prices given strong raw material
tie-ups, and relatively good pricing flexibility.
The Cabinet Committee on Economic Affairs announced NBS rates for phosphatic and potassic fertilisers on
March 31, 2016. While subsidy for P (phosphorus) and K nutrients have been slashed by Rs 1.24 per kg and Rs
3.075 per kg, respectively, or by ~10% and 20%, respectively, the subsidy for N (nitrogen) nutrient has been
increased by Rs 3.135 per kg or by 20%.
The government has also expressed its intention to implement DBT from June in the fertiliser sector after a
successful pilot in 16 districts.
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Ratio of nitrogen, phosphorous and potassium (N:P:K)
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Company Name
Rating
Coromandel International Limited
CRISIL AA+/Stable/CRISIL A1+
Indian Farmers Fertilisers Co-Operative Limited
CRISIL AA/Stable/CRISIL A1+
Chambal Fertilisers and Chemicals Limited
CRISIL AA-/FAA/Stable/CRISIL A1+
National Fertilizers Limited
CRISIL AA-/Stable/CRISIL A1+
KRIBHCO Shyam Fertilizers Limited
CRISIL AA-/Stable/CRISIL A1+
Krishak Bharati Cooperative Limited
CRISIL AA-/Stable/CRISIL A1+
Mangalore Chemicals and Fertilizers Limited
CRISIL BB/Stable/CRISIL A4+
Rashtriya Chemicals and Fertilizers Limited
CRISIL A1+
Tata Chemicals Limited
CRISIL A1+
The Fertilisers and Chemicals Travancore Limited
CRISIL B+/Stable/CRISIL A4
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