Fertiliser stocks, including Rashtriya Chemicals and Fertilisers (RCF), Fertilisers and Chemicals Travancore (FACT), National Fertilisers Limited (NFL), and Madras Fertilisers, have surged up to 35% in recent trading sessions, capturing the attention of Indian investors aged 25–60 seeking long-term investments.
Driven by hopes of GST exemptions, strong monsoon-driven demand, and a favorable agricultural outlook, these stocks are shining in India’s stock market.
This article breaks down the key factors, financial updates, and why fertiliser stocks are a compelling choice for sustainable wealth creation in the agriculture sector.
Key Financial Highlights
Fertiliser stocks have seen significant gains in anticipation of policy changes and seasonal demand:
- RCF: Shares hit ₹241, up 11.7% on July 22, 2024, with trading volumes of 12.12 lakh shares against a two-week average of 12 lakh (Business Standard).
- FACT: Stock soared to a record high above ₹1,100, with market cap exceeding ₹70,000 crore, but fell 9% post-GST Council meeting on June 24, 2024 (CNBCTV18).
- NFL: Shares rallied 13% intra-day on July 22, 2024, driven by pre-Budget optimism.
- Madras Fertilisers: Reported a Q4 FY25 net loss of ₹52.4 crore vs. a ₹88.4 crore profit YoY, with revenue down 27% to ₹555 crore and EBITDA loss of ₹61.1 crore (X Post). Despite losses, the stock gained 10% intra-day on July 22, 2024 (Business Standard).
Sources: CNBCTV18, Business Standard, X Post
Stock Performance and Valuation
- RCF: Stock price at ₹239 (July 22, 2024), market cap ~₹13,200 crore, P/E ratio ~12.5, offering value for long-term investors.
- FACT: Stock price ~₹1,000 post-correction, market cap ~₹70,000 crore, P/E ratio ~45, reflecting premium valuation due to high demand.
- NFL: Stock price ~₹130, market cap ~₹6,400 crore, P/E ratio ~10.8, indicating undervaluation.
- Madras Fertilisers: Stock price ~₹110, market cap ~₹1,800 crore, P/E ratio not applicable due to losses, but recent rally suggests investor optimism.
- Recent Gains: Over the past month, these stocks surged 30–35% due to GST hopes and kharif season demand (CNBCTV18).
Sources: Business Standard, Moneycontrol
Key Drivers of the Rally
- GST Exemption Hopes: The GST Council on June 24, 2024, referred a proposal to exempt fertilisers from the 5% GST rate to the Group of Ministers on Rate Rationalisation. Raw materials like sulphuric acid and ammonia face 18% GST, and an exemption could boost margins (CNBCTV18). Analysts, however, believe the impact may be limited.
- Strong Monsoon Demand: A favorable monsoon has accelerated kharif sowing, driving 10–20% expected sales growth for fertiliser companies in FY25 (Business Standard).
- Global Factors: Russia’s 23.5% export duty on fertilisers from January 2023 tightened global supply, boosting Indian fertiliser stocks (Business Standard).
- Pre-Budget Optimism: Pre-Budget consultations with Finance Minister Nirmala Sitharaman included proposals for fertiliser subsidy rationalisation and increased agricultural research funding, fueling stock rallies (Business Standard).
- FII Interest: Foreign institutional investors increased holdings in RCF and NFL, reflecting confidence in the sector’s long-term potential.
Why Invest in Fertiliser Stocks?
Fertiliser stocks like RCF, FACT, and NFL are attractive for long-term investors due to:
- Agricultural Demand: India’s agriculture sector, supporting 60% of the population, drives consistent fertiliser demand.
- Government Support: Subsidies and potential GST exemptions enhance profitability for fertiliser companies.
- Valuation: RCF and NFL’s low P/E ratios (12.5 and 10.8) offer value compared to the sector average of 15.
- Seasonal Boost: Strong monsoon and kharif sowing ensure 10–20% sales growth in FY25.
- Global Opportunity: Tight global supply due to export duties creates opportunities for Indian firms.
X posts highlight investor optimism, with many citing GST hopes and monsoon-driven demand as key drivers.
Risks to Consider
- Limited GST Impact: Analysts suggest GST exemptions may not significantly boost margins, leading to a 5–10% stock correction post-GST Council meeting (CNBCTV18).
- Volatility: FACT and GNFC faced F&O bans, limiting new positions and increasing price swings.
- Raw Material Costs: High GST (18%) on inputs like sulphuric acid could pressure profitability.
- Policy Delays: Uncertainty around GST exemptions and subsidy rationalisation may cause short-term fluctuations.
Investors should monitor policy updates and quarterly results, consulting financial advisors to align with their stock market goals.
Sectoral Context
India’s fertiliser sector is vital, with agriculture contributing 18% to GDP. The sector is projected to grow at a 4–6% CAGR through 2030, driven by government subsidies, rising crop demand, and renewable energy integration in production. A favorable monsoon and policy support enhance the sector’s long-term outlook, making fertiliser stocks a stable choice for stock market portfolios.
Conclusion
Fertiliser stocks like RCF, FACT, and NFL have rallied on GST exemption hopes and strong agricultural demand, making them attractive for Indian investors seeking long-term growth. Despite short-term volatility and limited GST impact, their low valuations, government backing, and seasonal demand create a compelling case for sustainable investing. Add these stocks to your watchlist, but stay cautious of policy and cost risks.
Roshan Sharma – Founder of StocksForBeginners.in
I’m Roshan Sharma, a stock market trader with 5+ years of experience. At StocksForBeginners.in, I provide expert fundamental analysis of Indian companies to help long-term investors make informed decisions. My mission is to simplify investing for beginners and share insights from my experience to guide others toward financial growth.