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Aarti Krishnan

IT is tempting to attribute the good showing by companies manufacturing urea in the quarter ended September to the "monsoon" effect. But a closer look at the numbers suggests that leading companies such as Tata Chemicals, Indo Gulf Fertilisers and Chambal Fertilisers have managed a relatively small ramp-up in fertiliser sales in the kharif season of 2003, indicating the "good monsoon" effect has yet to kick in.

Double-digit profit growth has come mainly from cost-cutting measures such as energy conservation, better procurement practices and streamlining of inventories.

Modest sales increase

Both Tata Chemicals and Indo Gulf Fertilisers have reported a sharp increase in their fertiliser sales for the quarter under review. Of course, the growth rate is magnified by the fact that in 2003 both companies have clocked the bulk of their kharif sales in the September quarter unlike the previous year when it was spread over the June and September quarters.

For the six-month period ended September 2003, a better indicator of kharif demand, Tata Chemicals notched up a modest 6.5 per cent growth in sales while Indo Gulf Fertilisers has actually registered a marginal drop in net sales.

The latter took a planned production shutdown during the quarter and met kharif demand mainly out of accumulated stocks.

Fertiliser sales numbers for producers such as Chambal Fertilisers and GNFC are also in single digit for the first half.

Statistics for the industry as a whole show that sales grew by a sedate 7.6 per cent in kharif 2003, from the extremely depressed levels of last year.

Monsoon effect muted in kharif

A couple of factors appear to have muted the impact of the good monsoon on fertiliser sales in the first half. First, with the drought of the previous year wreaking havoc on farm incomes, fertiliser sales have been slow to take off in the current year.

Producers too appear to have cut back on output, instead preferring to liquidate the piled up inventories from the previous season.

Second, though this year's monsoon has been better than its predecessors in its geographical spread, it has been less than bountiful in the Southern States.

Among the 14 States that make up the key target markets for urea, only seven have shown significant increase in kharif urea sales compared to last year. Sales in the other States have either stagnated at previous year's levels or have shown significant declines, especially in the South.

Best is yet to come

This suggests that for companies engaged in marketing of urea, the second half of the current fiscal may yet turn out to be the best part. For, if the kharif harvest puts more cash in the hands of the farming community, a sharp pick-up in fertiliser demand may be in the offing. The initial signs, available from fertiliser despatches for the just-begun rabi season, are encouraging.

It is also a positive sign that companies have managed a sharp expansion in operating profits in the first half, despite a spike in feedstock and fuel prices.

This is proof that companies have adjusted well to the transition to a uniform subsidy regime, which took effect from April this year. The sharp upswing in international urea prices from $91 to $150 per tonne in the last one year may also act in favour of domestic manufacturers.

The rise effectively ensures that the Government does not consider cheap imports as an option.

With global urea prices firming since September 2002, apprehensions that the Government may cut its subsidy bill by meeting part of the domestic urea demand through cheap imports, have also largely subsided.

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