The Government of India has issued fertilizer bonds worth Rs 7,500 crore to part-finance the additional subsidy burden due to rising price of imported feedstock and fertilizer. The bonds will be similar to the petroleum bonds and will be freely tradable in the market. Earlier, in the 2007-2008 supplementary Budget, the government had sanctioned Rs15, 000 crore for the fertilizer ministry, comprising of bonds, Rs 6,550 crore as net cash outgo and Rs 950 crore as recoveries under crop husbandry.
The Government's expenses would be taken off budget via these bonds. The bonds would be cost neutral and may attract secured interest rate of 9.5-10%. The bonds will be tradable in the secondary market. The bonds will be traded with coupon rate and the government will decide the tenure.
SP Tuslian, of sptulsian.com says, "The Fertilizer Ministry has asked for Rs 17,500 crore-that too, they have said that it would last only till December. In fact, it is very strange why they could not have asked for the estimated shortfall which is not expected to last upto March 2008. So, even if I presume it to be Rs 17,500 crore; against that, the Government has released only Rs 15000 crore, of which Rs 7,500 crore are being paid in the form of the fertilizer bonds. And last year's deficit brought forward, is to the extent of Rs 12,000 crore. So everything is murky on this fertilizer subsidy front; probably for the year, they will be having around Rs 35000-Rs 37000 crore plus Rs 12, 000 brought forward – so about Rs 50, 000 worth subsidy will be there as outgo for 2007-08."
Technical Analyst, Sudarshan Sukhani is upbeat about the happenings in the fertilizer sector. "The charts are telling us that something big is going on in the fertilizer sector and every dip is a buying opportunity. As a technical analyst, I don't ask why its happening. But certainly something very important is going on, throughout that sector. So we should not worry that the fertilizer stocks are over priced; every correction of a small dip is a buying opportunity for investors and traders."
Krishna Kumar Karwa, Director, Emkay Share & Stock Brokers foresees a substantial policy shift by the Government in the fertilizer sector. He says, "In the last five years or so, in fertilizers, there have hardly been any capex or Greenfield projects set up as such. The subsidy bill has just ballooned, now with more gas availability we believe that there will be a substantial policy shift and there could be some announcements as far as encouraging new fertilizer plants to be set up as such. I think that is the reason we are seeing interest in fertilizer stocks in the last two-three days because if any new policy announcements etc. come in, they could be beneficial for the existing players as well as for the new plants, which are expected to set up. The government has to take concern of the fact that the subsidy bill has ballooned from almost Rs 25,000 crore two years ago to almost Rs 50,000 crore. So some initiatives are expected and that is the reason why we are seeing so much of action in fertilizer stocks."
He adds, "Today, you have efficient fertilizer manufacturing plants as well as inefficient. And the subsidy burden from the inefficient fertilizer plants is very high. We believe that they will link the new plants to import-parity prices. But with gas availability improving substantially, your overall subsidy burden would tend to come down as such. Secondly, you have efficient fertilizer units that are not producing beyond their rated capacity. So maybe they will allow them to produce more than rated capacity, which will effectively reduce the subsidy burden. So these are some of the changes that could possibly come, going forward.
The Government's expenses would be taken off budget via these bonds. The bonds would be cost neutral and may attract secured interest rate of 9.5-10%. The bonds will be tradable in the secondary market. The bonds will be traded with coupon rate and the government will decide the tenure.
SP Tuslian, of sptulsian.com says, "The Fertilizer Ministry has asked for Rs 17,500 crore-that too, they have said that it would last only till December. In fact, it is very strange why they could not have asked for the estimated shortfall which is not expected to last upto March 2008. So, even if I presume it to be Rs 17,500 crore; against that, the Government has released only Rs 15000 crore, of which Rs 7,500 crore are being paid in the form of the fertilizer bonds. And last year's deficit brought forward, is to the extent of Rs 12,000 crore. So everything is murky on this fertilizer subsidy front; probably for the year, they will be having around Rs 35000-Rs 37000 crore plus Rs 12, 000 brought forward – so about Rs 50, 000 worth subsidy will be there as outgo for 2007-08."
Technical Analyst, Sudarshan Sukhani is upbeat about the happenings in the fertilizer sector. "The charts are telling us that something big is going on in the fertilizer sector and every dip is a buying opportunity. As a technical analyst, I don't ask why its happening. But certainly something very important is going on, throughout that sector. So we should not worry that the fertilizer stocks are over priced; every correction of a small dip is a buying opportunity for investors and traders."
Krishna Kumar Karwa, Director, Emkay Share & Stock Brokers foresees a substantial policy shift by the Government in the fertilizer sector. He says, "In the last five years or so, in fertilizers, there have hardly been any capex or Greenfield projects set up as such. The subsidy bill has just ballooned, now with more gas availability we believe that there will be a substantial policy shift and there could be some announcements as far as encouraging new fertilizer plants to be set up as such. I think that is the reason we are seeing interest in fertilizer stocks in the last two-three days because if any new policy announcements etc. come in, they could be beneficial for the existing players as well as for the new plants, which are expected to set up. The government has to take concern of the fact that the subsidy bill has ballooned from almost Rs 25,000 crore two years ago to almost Rs 50,000 crore. So some initiatives are expected and that is the reason why we are seeing so much of action in fertilizer stocks."
He adds, "Today, you have efficient fertilizer manufacturing plants as well as inefficient. And the subsidy burden from the inefficient fertilizer plants is very high. We believe that they will link the new plants to import-parity prices. But with gas availability improving substantially, your overall subsidy burden would tend to come down as such. Secondly, you have efficient fertilizer units that are not producing beyond their rated capacity. So maybe they will allow them to produce more than rated capacity, which will effectively reduce the subsidy burden. So these are some of the changes that could possibly come, going forward.
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