Budget 2012: Big gains for fertiliser cos but investors unimpressed

The Union Budget 2012-13 is expected to have a positive impact on the fertiliser industry that is expected to benefit from cheaper farm credit.

According to research firm Crisil, fertiliser demand is set to get a boost on account of cheaper credit availability to farmers. The government will provide interest subvention to farmers who make timely payments of farm loans, effectively lowering the interest rates.

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Although the government has extended investment-linked benefits for increasing urea production in the country, made fertiliser companies eligible for viability gap funding and exempted customs duty on imports of capital equipment, additional investments in urea plants will depend on domestic gas allocation, says Crisil.

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The reduction in basic customs duty on some water-soluble fertilisers and liquid fertilisers could also increase their use, which again benefits fertiliser players.

The government’s decision to exempt basic duty of 5 percent on import of capital equipment for fertiliser expansion projects will be positive for companies planning urea investments. This is expected to benefit companies like Chambal fertilisers, RCF, Tata Chemicals. (see table for overall proposals).

The government has also pegged the fertiliser subsidy at Rs 60,900 crore for the next financial year ending March 2013 compared with the revised estimate of Rs 68,000 crore for the current year ending March 2012 .

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Nevertheless, investors seemed unimpressed. Shares of Zuari Inds, Fertiliser & Chemicals Travancore, Khaitan Chemicals & Fertilisers, Bharat Fertilisers, Deepak Fertilisers & Petrochemicals, Gujarat Narmada Valley Fertilisers Company reported a 2-5 percent fall yesterday.

See more Budget 2012 videos and expert views on Firstpost: Ajay Shah , Rupa Rege Nitsure , Indranil Pan , Ashima Goyal , Jim Walker , DK Joshi , Ajit Ranade , Art Woo .

See more Budget 2012 issue based videos and firstpost’s analyses: Subsidies , Fiscal deficit , Inflation , Taxation , Dissecting the Budget , What Budget 2012 means for markets .