Top 5 fertilizer stocks to watch out for pre-budget gains
This focus comes from addressing voter concerns in rural areas, where the ruling party faced significant losses in the recent elections.
The emphasis on rural areas and agriculture could lead to potential increases in fertilizer subsidies.
Increased fertilizer subsidies would directly benefit fertilizer companies, potentially leading to gains in their stock prices.
Keeping that in mind, here are the top five fertilizer stocks to watch for pre-budget gains.
We have filtered these stocks using Equitymaster’s top fertilizer companies screener. Additionally, we removed all the stocks with a debt-to-equity ratio greater than 0.9 times.
Take a look…
#1 Chambal Fertilisers
Chambal Fertilisers is India’s largest single-location, private-sector urea manufacturer, with an annual production capacity of around 3.4 million metric tonnes of urea.
In addition to manufacturing urea, Chambal markets other fertilizers and agri-inputs.
The company’s business segments include its own manufactured fertilizers, complex fertilizers, crop protection chemicals and speciality nutrients.
Financially, the company has performed well in FY24, despite lower sales volume of urea and P&K fertilizers. The annual net profit grew 23.4% yearly to ₹1,280 crore.
The company attributes the higher profits, compared to last year, to a positive margin on di-ammonium phosphate (DAP) compared to a loss the previous year and lower interest costs.
Going forward, Chambal is anticipating growth due to strong demand for its products, expansion of its marketing territory, diversification with a new technical ammonium nitrate (TAN) plant, and timely release of government subsidies.
It plans to introduce new products, particularly in crop protection chemicals (CPC) and specialty nutrients, including biostimulants and hybrid and research variety seeds.
The company recently launched six new weedicide products and two new fungicide products. It is also evaluating two more biological products.
The company is establishing marketing arrangements with innovator companies from Japan, the US, Europe, and the Middle East to access new-age CPC and SN products.
It is also shifting its focus to cater to high-value crops like fruits, vegetables, and niche crops to boost its margins.
Here’s how the stock price has performed in the past one year.
#2 Coromandel International
Coromandel International is a leading agri-solutions provider in India.
It’s part of the Murugappa Group and operates in two core segments – nutrients & allied businesses and crop protection.
It is a major player in the phosphatic fertilizer market and the largest marketer of organic fertilizers in India.
FY24 proved to be a challenging year for Coromandel due to below-normal monsoons, lower reservoir levels, and global headwinds in the crop protection segment.
Despite these challenges, it delivered a resilient performance, and its stock price also rose by 42% in a year.
During the year, its fertilizer plants operated at 95% capacity, achieving a record production volume of complex fertilizers.
The company also commissioned a new sulphuric acid plant and desalination unit in Vizag.
Its crop protection business registered 20% volume growth driven by exports and domestic formulations. However, revenue declined by 8% due to price erosion.
The company’s management has indicated a focus on strengthening the core business while exploring new growth avenues, such as contract development and manufacturing organization (CDMO) and specialty chemicals.
In its earnings call for Q1, the management confirmed its Ebitda per ton guidance for manufactured fertilizers at ₹4,500 to ₹5,000.
The company plans to increase its granulation capacity at Kakinada by an additional million tonnes.
To improve overall Ebitda margins, the company is prioritizing growth in crop protection and specialty chemicals business.
It plans to add another 100 retail stores in FY 24-25 and expand services like drone spraying and crop diagnostics.
The company is actively expanding its product portfolio with launches like Nano DAP and new biostimulant brands.
#3 Fertilizers & Chemicals Travancore (FACT)
Fertilizers & Chemicals Travancore (FACT) is a PSU incorporated in India in 1943.
The company has an extensive marketing network in South India with about 5,566 dealers.
Before 2020, the fact about FACT was that it was barely making any profits. But how the tables turned after the pandemic…
FACT experienced a significant financial turnaround in the fiscal year 2022-23, achieving its highest-ever turnover and profit.
The company achieved a turnover of ₹5,050 crore and a net profit of ₹150 crore in FY24.
The company has faced challenges in the recent past due to high interest rates on government of India loans (13.5% interest on approximately ₹240 crore, exchange rate variations that impact import costs, and dependence on imported raw materials.
FACT submitted a financial restructuring package to the Centre that proposes converting part of the government’s loan into equity, writing off interest on the loan, and restructuring the remaining loan balance. The proposal is currently under consideration.
The management team has secured a five-year agreement with Indian Oil (IOC) for the supply of reliquefied natural gas (RLNG) and has secured domestic suppliers for sulphur and benzene.
Capital expenditure projects are progressing as planned, including the setup of a 1650 TPD Factamfos plant. This and other projects could increase fertilizer production from 10 lakh metric tonnes (MT) to 14 lakh mt, leading to higher turnover and profits.
Here’s how the stock price has performed in the past one year.
#4 Southern Petrochemicals Industries Corp.
Fourth on the list is Southern Petrochemical Industries Corporation (SPIC) which primarily manufactures and sells Urea, a nitrogenous chemical fertilizer.
The company had a lacklustre performance in FY24 with sales down 31% year on year and net profits declining more than 60%.
The main reason for this bad performance was production challenges.
The company’s plants operated for only 260 days, producing about 522,535 mt of neem-coated urea, significantly lower than the reassessed capacity of 620,400 mt.
This was due to frequent machinery disturbances and heavy flooding caused by cyclone Michaung.
But this bad news is behind the company and SPIC has transitioned to a 100% natural gas-based operation during FY 2023-24.
The company modified its ammonia plant to utilize natural gas fully and commissioned it toward the end of the financial year.
The natural gas pipeline from Ennore to Sayalkudi, constructed by Indian Oil, was completed and commissioned in September 2023.
SPIC will now have an assured RLNG supply from IOC and day-to-day operations should get back to normal.
Here’s how the stock price has performed in the past 1 year.
#5 Deepak Fertilisers
The company produces industrial chemicals, crop nutrition products, and mining chemicals. It has a long history dating back four decades. Their products are used in various sectors such as agriculture, pharmaceuticals and mining.
The company is shifting its business model away from simply providing commodity products to a “solutions-oriented” model that provides specialty products to its customers.
In FY24, the company’s chemical business segment (which includes industrial and mining chemicals) contributed 55% of total revenue, while the fertilizer business segment contributed 44%.
The company is looking to increase the percentage of specialty fertilizer products they offer. While currently 20% of their product mix, the company is aiming to double the amount of specialty products they offer.
It has entered a seven-year strategic commercial alliance with Haifa, a global leader in specialty fertilizers. This partnership will aid in the company’s transition to specialty products company.
Deepak Fertilisers is organized into three main business segments industrial chemicals, mining chemicals, and crop nutrition. The crop nutrition segment is the fertilizer business.
The crop nutrition business will be a standalone company called Mahadhan AgriTech (MAL), as a result of an ongoing scheme of arrangement.
As of October 30, 2024, the mining chemicals business is being carved out of MAL into a new legal entity called Deepak Mining Solutions.
The company’s management believes that the recent launch of their new ammonia plant has fundamentally strengthened the company’s business standing.
Ammonia is a key input in the production of many of the company’s downstream products. The company’s industrial chemical, mining chemical, and crop nutrition business segments all rely on ammonia as a key input. For example, ammonia is used in the production of nitric acid, technical ammonium nitrate (TAN), and various fertilizers.
The plant, which has a capacity of 1,500 metric tonnes per day, has allowed the company to transition away from importing most of the ammonia it needs.
By producing ammonia in-house, the company can avoid the cost of importing ammonia and the risk of price volatility in the global ammonia market.
The plant will give the company more control over its supply chain and improve its ability to meet the needs of its customers.
Snapshot of top fertilizer stocks on Equitymaster’s stock screener
Here’s a table showing the above companies on various important parameters –
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Conclusion
The upcoming budget presents a promising opportunity for the fertilizer sector, with key stocks poised to benefit from favourable policies and increased government focus on agriculture.
By keeping an eye on these top picks, investors can position themselves to reap potential gains as the market responds to budget announcements.
However, it’s important to conduct thorough research on financials and corporate governance before making investment decisions, ensuring they align with your financial goals and risk tolerance.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
