Kharif lost, but hope rains for fertiliser companies

The Kharif party was almost pooped before a late revival in monsoon propped up volumes somewhat for fertiliser makers. But now, with reservoirs across the country at healthy levels, it appears as if the Rabi season will more than make up for the sales lost.

The Rabi season, which starts from November and stretches till February, largely depends on reservoir water to support wheat crops and hence sufficient rainfall is a precursor to a good harvest.

According to a report by the Central Water Commission (CWC), for the week ended September 13, the water level across 84 major reservoirs stood at 109.37 billion cubic metres (bcm), which, though less than last year’s 126.27 bcm during the same time, was higher than the last ten years’ average of 102.84 bcm.

CWC continuously monitors 84 water reservoirs across the country, having capacity at full reservoir level (FRL) of 154.42 bcm, which is about 73% of the total reservoir capacity in the country.

In fact, according to CWC, the percentage of current storage to FRL in the current month stood at 71% for this year as against 82% last year and 72% in 2010, 58% in 2009 and 69% in September 2008.

“The Kharif season was a little bad for fertiliser companies as, before the monsoons revived, the sowing had already been done. But with current reservoir capacity, we can expect fertiliser companies to post good numbers during the Rabi season,” said an analyst with a leading domestic brokerage.

He said the numbers for the second quarter will be more or less muted, but the succeeding quarters will be better.

Recently, agriculture minister Sharad Pawar had said that foodgrain production during the Kharif season was expected to be 10% lower due to poor early rainfall.

According to the agriculture minister, 983.68 lakh hectare had been sown under various Kharif crops up to September 14, compared to average sown area of 995.78 lakh hectare up to the corresponding period in the previous years. This is expected to bring down the estimated Kharif foodgrain production this year to 117.18 million tonne as against 123.88 million tonne last year and marginally lower than the average of 118.86 million tonne.

“There will be a slight dip in volumes of fertiliser companies in the first half of the year due to late pick-up of monsoons, but farmers who delay sowing in Kharif opt for the Rabi season to make up for the loss. This will reflect in higher demand for fertilisers,” said Salil Garg, director, India Ratings and Research, a Fitch Ratings group company.

He said his agency has a stable outlook on the fertiliser sector as the rainfall this year was not as bad as it appeared in July.

According to the CWC, cumulative deficiency in rainfall of (-)8% on September 12 was 20% lower than deficiency recorded on September 9, 2009, the driest year in the last five. The percentage of deficient and scanty rainfall districts (37% and 6%, respectively) this year is also lower compared with 49% and 9% as on September 9, 2009.

To be sure, the withdrawal of monsoon, which normally commences on September 1, has also been delayed, CWC pointed out.

The earlier-quoted domestic-brokerage analyst concurred. “The reservoir levels are expected to go up even higher as monsoons are yet to retreat from across the country, which means we are much better than the worst year this time and hence can expect better volumes by fertiliser companies in the second half of the fiscal.”

For urea manufacturing companies such as RCF and Chambal, the second half is expected to be good, said the analyst.

However, complex fertiliser companies such as Coromandel may still see muted numbers because of a higher base — a lot of inventory was pushed into the March quarter last year, leading to a jump in volumes. Fertiliser is mainly divided into two components – urea and non-urea. The non-urea part, which uses different combinations of nitrogen, phosphorus and potassium, comes under the category of complex fertilisers.