Sector Update | 16 January 2019

Agriculture

A year of diverging fortunes for fertilizer industry

Refer to our report published

on 19 December 2018

Rabi fades Kharif enthusiasm; CRIN outperforms industry

Indian fertilizer industry volumes grew by a muted 1.7% YoY in 9MFY19 (according to the

Ministry of Fertilizers data) due to anemic sowing activity in Rabi across key states. The

Rabi 2018-19 season has turned out to be unfavorable so far, as farmers faced plights in

the form of low reservoir levels (down by 37%, 28% and 23% YoY in Maharashtra, AP and

Telangana, respectively) and reduced moisture content. In this note, we highlight key

trends in the fertilizers industry for FY19:



The situation was much better in 1HFY19 than in recent times, with a significant

tapering in volume growth (from 7.8% YoY in 1HFY19 to -8.4% YoY in 3QFY19),

manufactured NPK growth (from 20% YoY in 1HFY19 to 10.3% in 9MFY19) and

manufactured urea growth (from 4.2% YoY in 1HFY19 to 0.3% in 9MFY19).



The continuous rise in phosphoric acid prices has resulted in a shift in balance from

manufactured DAP (-24.3% YoY in 9MFY19) to traded DAP (+59.3% YoY in 9MFY19).



While hostile conditions have failed to fertilize industry growth, CRIN has bucked the

trend by growing at ~7.9% YoY. The company’s NPK volumes increased 17.9% YoY in

9MFY19, with its market share in NPK expanding by 190bp and phosphatic fertilizer

(NPK+DAP) volumes growing by 13.2% YoY.

Volumes suffer amid a subdued Rabi season







Industry volume growth was flattish at 1.7% YoY in 9MFY19, with subsiding

growth in manufactured NPK (+10.3%), manufactured SSP (+7.6% YoY),

manufactured MOP (-1.7%) and manufactured urea (flat).

We, however, note that this has not been an across-the-year trend. Volume

growth was strong in Kharif 2018, primarily led by increased acreage in key

crops. Volumes of manufactured NPK grew by 20% YoY on average in 1HFY19

(Kharif season), followed by manufactured SSP (+14.9%), manufactured MOP

(+5.9%) and manufactured urea (+4.2% YoY).

The important Rabi season was downcast across key regions, with volumes of

manufactured NPK down by 6.6% YoY in 3QFY19. Manufactured MOP (-18.3%

YoY), SSP (-5.1% YoY) and urea (-6.7% YoY) volumes were also muted.

The key fertilizer-consuming states are Maharashtra (21.7% of NPK volumes),

Karnataka (12.8%), Andhra Pradesh (11.7%), Telangana (11.2%), West Bengal

(10.2%), Gujarat (7.5%), Tamil Nadu (5.9%) and Uttar Pradesh (5.7%).

All the aforementioned states, barring UP and Telangana (where manufactured

NPK volumes grew 6.7% and 2.4% YoY, respectively, in 3QFY19), witnessed a

muted Rabi season.

The NPK volume decline was particularly pronounced in Maharashtra (-31.3%

YoY in 3QFY19), followed by Gujarat (-19.9%), Tamil Nadu (-13.5%), Andhra

Pradesh (-8.7%), West Bengal (-8.2%) and Karnataka (-5.1%).

We note that a good Kharif season was overshadowed by the Rabi

disappointment, leading to soft volume growth in the key states in 9MFY19 –

Andhra Pradesh (flat NPK volumes), Gujarat (-12% YoY), Karnataka (+31.3% YoY),

Maharashtra (-0.6% YoY), Tamil Nadu (+8.9% YoY), Telangana (+6.2% YoY), Uttar

Pradesh (+39.8% YoY) and West Bengal (+10.1% YoY).

The story is dismal across states









Sumant Kumar – Research analyst

(Sumant.Kumar@MotilalOswal.com); +91 22 6129 1569

Aksh Vashishth – Research analyst

(Aksh.Vashishth@MotilalOswal.com); +91 22 6129 1553

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on

www.motilaloswal.com/Institutional-Equities,

Bloomberg, Thomson Reuters, Factset and S&P Capital.

Fertilizers

High phos acid prices shift balance from manufacturing to traded DAP







The prices of phosphoric acid have remained firm (up 35.4% YoY to USD768/MT)

so far in FY19, exerting pressure on the gross margins, especially for DAP-centric

players. This is because phosphoric acid forms a major portion of DAP raw

material cost.

Consequently, the industry is shifting to trading DAP from manufacturing it. This

is evident from the sharp decline of 24.3% YoY (as of Dec’18) in manufactured

volumes of DAP, as against a whooping rise of 59.3% YoY (as of Dec’18) in

traded volumes.

However, the industry has taken multiple price hikes (~40% aggregate over the

last year) to counter rising input costs. As a result, end-demand has been

gradually shifting to NPK variants, where margins are relatively high.

CRIN bucking the industry trend though









In our

update

on CRIN dated 10

th

Sep’18, we had highlighted that the company

is expected to deliver a healthy performance in FY19, with volume growth of 7%.

CRIN has fared well on our expectations so far, with volume growth of 7.9% in

9MFY19 – 13.2% growth in phosphatic (NPK+DAP) fertilizers over the period

contained by a 5.1% YoY decline in 3QFY19.

CRIN has capitalized on its strong operational capabilities (backward integration

in phos acid) to tackle pressures facing the industry (high input costs, subdued

sowing in Rabi) and in the process gained market shares across key regions.

The company’s NPK volume market share (as of Dec’18) expanded by 550bp in

Andhra Pradesh (to 67.6%), by 370bp each in Telangana/West Bengal (to

66.4%/31.2%), by 300bp in Tamil Nadu (to 11.5%), and remained flattish in

Maharashtra (at 15.2%) and Karnataka (at 21.4%).

This growth was driven by its key products – 20-20-0-13 (+32% YoY), 28-28-0

(+22% YoY), 10-26-26 (+5% YoY) and 14-35-14 (+24% YoY), which collectively

formed 85% of total NPK volumes as of FY18 and 88% as of 9MFY19.

16 January 2019

2

Fertilizers

Exhibit 1: Product-wise industry volumes of fertilizers (in MT)

Industry

Manufactured

DAP

Growth %

MOP

Growth %

NPKS

Growth %

SSP

Growth %

Urea

Growth %

Total

Growth %

Imported

DAP

Growth %

MOP

Growth %

NPKS

Growth %

Urea

Growth %

Total

Growth %

Grand Total

Growth %

Oct-18

522,166

-37.7%

173,160

6.0%

795,577

13.3%

458,554

17.0%

1,791,355

2.4%

3,740,813

-2.7%

504,512

18.5%

82,955

-17.5%

54,462

281.3%

378,798

56.1%

1,020,727

30.3%

4,761,539

2.9%

Nov-18

602,798

-33.2%

128,269

-28.0%

692,912

-14.5%

320,916

-16.8%

2,005,250

-16.8%

3,750,145

-20.0%

605,221

18.7%

71,617

-35.7%

30,727

40.4%

492,785

-18.9%

1,200,350

-4.1%

4,950,495

-16.6%

Dec-18

286,998

-35.6%

124,388

-30.8%

663,176

-16.2%

232,986

-19.3%

2,489,209

-3.4%

3,796,756

-11.3%

248,662

60.9%

79,053

-18.1%

29,598

62.5%

930,533

-9.9%

1,287,845

-1.1%

5,084,601

-9.0%

YTD FY18

5,402,041

1,651,867

6,298,464

2,908,971

18,967,047

35,228,390

YTD FY19

4,090,548

-24.3%

1,623,569

-1.7%

6,944,606

10.3%

3,128,666

7.6%

19,025,962

0.3%

34,813,351

-1.2%

3,597,013

59.3%

706,631

-25.0%

396,264

150.3%

4,209,034

-4.2%

8,908,942

14.9%

43,722,293

1.7%

2,257,998

942,383

158,296

4,391,933

7,750,609

42,978,999

Source: Ministry of Fertilizers, Motilal Oswal

Exhibit 2: Product-wise CRIN volumes of fertilizers (in MT)

Industry

Manufactured

DAP

Growth %

MOP

Growth %

NPKS

Growth %

SSP

Growth %

Urea

Growth %

Total

Growth %

Imported

DAP

Growth %

MOP

Growth %

NPKS

Growth %

Urea

Growth %

Total

Growth %

Grand Total

Growth %

Oct-18

2,939

-88.8%

-

196,680

35.4%

65,985

80.0%

-

265,604

27.5%

13,280

664.9%

25,887

68.6%

-

26,177

-22.7%

65,345

28.2%

330,949

27.7%

Nov-18

5,780

-87.5%

-

114,622

-26.0%

40,581

-10.1%

-

160,983

-34.6%

28,671

4851.9%

3,658

-42.3%

-

-100.0%

81,002

-20.3%

113,332

4.4%

274,315

-22.6%

Dec-18

10,021

-76.4%

-

185,123

-7.1%

47,608

-23.5%

-

242,752

-20.2%

29,357

1768.6%

9,681

32.2%

-

154,970

-38.7%

194,009

-25.8%

436,760

-22.8%

YTD FY18

458,705

-

1,659,115

365,991

-

2,483,812

YTD FY19

238,786

-47.9%

-

1,956,409

17.9%

434,035

18.6%

-

2,629,230

5.9%

248,461

512.6%

91,912

-22.1%

-

-100.0%

747,347

-7.0%

1,087,719

13.1%

3,716,950

7.9%

40,559

117,971

0

803,345

961,876

3,445,687

Source: Ministry of Fertilizers, Motilal Oswal

16 January 2019

3

Fertilizers

Exhibit 3: Volume contribution within NPK products for CRIN in 9MFY19

12%

20-20-0-13

13%

40%

28-28-0

10-26-26

13%

22%

Source: Ministry of Fertilizers, Motilal Oswal

14-35-14

Others

Exhibit 4: CRIN’s market share movement in key states (%)

YTD FY18

67.6%

66.4%

YTD FY19

62.1%

11.5%

8.5%

Andhra Pradesh Tamil Nadu

31.2%

60.7%

27.5%

Telangana

West Bengal

15.2%

15.3%

Maharashtra

21.4%

21.5%

Karnataka

Source: Ministry of Fertilizers, Motilal Oswal

16 January 2019

4

Fertilizers

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16 January 2019

5

Fertilizers

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16 January 2019

6