Fertiliser stocks may not be the most glamorous option for your portfolio, but they can be an excellent way to hedge against the market volatility. While fertiliser companies produce the vital inputs needed to ensure a steady food supply to the nation, they are mostly unloved in the stock market. Fertiliser producers admittedly are not among the favourite segments in the market, but they produce a product which is vital to ensure our high standard of living. For, without modern farm chemicals, high production agriculture would be impossible and our food bills would be considerably higher. While farmers are unsung heroes, agrochemical and fertiliser producers are equally under-appreciated by the market participants. From an overall macro point of view, the year 2021 has been very atypical wherein international prices of agri-inputs and fertilisers have gone up substantially over the last three months to multi-year highs. Farmers around the world are striving to increase production on the back of pandemic related anxieties and willing to pay higher prices for DAP and complex fertilisers and therefore application levels of phosphatic and complex fertilisers in the international markets is extremely high. Against this backdrop of rising international prices of fertilisers, the industry is working closely with the government to identify the best course of action wherein it has increased the subsidy on P&K fertilisers to soften the impact of price rise. Plus, there is much improvement in subsidy payments by the government enabling the fertiliser companies to maintain a strong liquidity position. Recently, major Chinese fertiliser companies have stopped exporting and with import coming down also, this has also led to rising international prices. Fertiliser stocks have recently seen a correction in the market and analysts feel that this is an opportunity for investors to re enter into their favourite stocks. Chambal Fertilisers and Chemicals Ltd. accounts for nearly 13% of the total urea produced in the country and has contributed to the food security of the country with responsibility. The company has three hi-tech nitrogenous fertiliser (urea) plants in Kota district of Rajasthan. These three plants have an installed annual production capacity of about 3.4 million MT of Urea contributing to major chunk of Urea consumed in leading agri states in North India. The third plant Plant commissioned recently is a state-of-art fertiliser unit and among the most efficient plants in the world using the latest technologies from USA and Japan. The new plant has an installed annual production capacity of about 1.34 million MT of urea. The company caters to the need of the farmers in ten states in northern, eastern, central and western regions of India and is leading fertiliser supplier in the State of Rajasthan, Madhya Pradesh, Punjab and Haryana. The company has the highest market share among private sector Urea manufacturers in the country. Chambal Fertlisers has been providing all the agri-products like urea, single super phosphate, diammonium phosphate and pesticides through a ‘single window’ to enable the farmer to buy all the products from one source. Most of these products are sold under the “Uttam” umbrella brand. The company achieved a turnover of Rs 3547 crore during the quarter ended 30 June 2021 as against Rs 3226 crore during the corresponding quarter of the previous year. Profit after tax stood at Rs 381 crores as against Rs 298 crores for the same quarter last year. Chambal Fertlisers posted better performance in the sales of crop protection products, especially nutrients and NPK fertilisers. Analysts and fund managers expect the Chambal Fertlisers stock to appreciate by 20% in the next one-year.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.