January 30, 2012
Fitch assigns stable 2012 fertiliser sector outlook to India
Fitch, a credit rating agency, assigned a steady outlook to India''s fertiliser industry amid reasonable cash balances, sufficient government support for subsidies and robust demand.
The agency said, however, that the availability of natural gas may not increase in the near term, despite the government prioritising the fertiliser sector in allocating natural gas.
Fitch Ratings'' outlook on the Indian fertiliser sector is stable based on the comfortable debt profile of Fitch-rated entities, sufficient government support towards subsidy and robust demand," it said in a statement.
The credit profiles of most Indian fertilisercompanies are supported by low levels of long-term debt, reasonable cash balances and moderate to low leverage. Capital expenditure will depend upon government policies, allocation of natural gas and long-term tie-ups for key inputs, it added.
Fitch expects that the natural gas demand by fertiliser units in the country could increase to 113 MMSCMD (Million Metric Standard Cubic Meter Per Day) by 2016-17 fiscal. Presently, gas requirement by the sector is expected at 41 MMSCMD in the current fiscal.
"However, the availability of natural gas may not increase in the near term. Although the government prioritised the fertiliser sector in allocating natural gas, reduction in output from a major source in KG Basin makes the increasing availability of natural gas highly unlikely," the agency said.
Fitch also pointed out the increasing gap between demand and supply on account of no major investments taking place in the domestic fertiliser sector during the past 10 years.
"Fertiliser consumption increased at a steady pace, while the domestic capacity of fertiliser manufacturers did not increase due to a lack of fresh investment. Lower investor interest is explained by limitations in availability of key inputs, natural gas and phosphoric acid," it added.
The agency, however expects the government to announce policy initiatives in 2012, which will help kick-start new investments in urea.
"These initiatives could include de-control over urea pricing, firm allocations of natural gas, fiscal concessions through tax breaks for new investments and rationalisation of sales tax," it noted.
Fitch expects the government to continue supporting the fertiliser sector with adequate and timely subsidies in cash through budgetary allocations.
On urea decontrol, it said, "The urea subsidy regime could be moved to nutrient-based subsidy (NBS) in 2012. This will bring in a uniform subsidy regime for all fertilisers."