Mr. Himanshu Binani - Research Analyst at Prabhudas Lilladher.
- Govt. increases NBS subsidy by 389%/60%/150%/192% for N, P, K, and S respectively; bodes well for the overall sector.
- Additional subsidy burden of Rs189bn to the exchequer.
The Central Government in a notification today raised Nutrient based subsidy rates (NBS) for 1HFY23 (applicable till September'22), wherein subsidy/kg of each nutrients i.e Nitrogen (N), Potash (P), Phosphorous (K) and Sulphur(S) have been revised upwards from Rs18.8/45.3/10.1/2.4/kg to Rs92.0/72.7/25.3/6.9/kg in 1HFY23. Increase in subsidy rates will largely help the industry to mitigate inflated RM cost without materially increasing MRP's in NPK grades (barring DAP- Price hike expected to be ~Rs10,000/tonne to fully mitigate the inflated cost). Subsidy rates have been revised upwards considering a) sharp increase in RM prices (like Phosphoric Acid and Ammonia) and b) having a check on farm-gate prices and reducing additional burden on farmers. Further, we understand that this move by Govt. would cost the exchequer an additional INR189bn (revised P&K subsidy of Rs609bn) over and above the budgeted amount of Rs420bn for NPK fertilizers in FY23. We are positive for the overall fertilizer industry in the near- medium term, as this announcement largely removes overhang on margins and addresses price hike and volume growth concern.