The government is expected to prioritize the agriculture sector in the upcoming FY24 budget, as it aims to achieve self-sufficiency in food staples and prevent the sector from getting affected by heavy rainfall like last year.
According to a report by JS Global Capital, a leading brokerage house, the government will likely announce various incentives and subsidies for the farmers, such as lower input costs, higher support prices, improved credit facilities, and better crop insurance schemes.
The report said that this would bode well for the fertilizer sector, as higher farmer income would allow them to tolerate fertilizer price increases in the event of any further hike in input costs. The report added that smooth price pass on would be vital for fertilizer manufacturers, given the gas price increase on the cards.
The report also said that the fertilizer offtake has shown growth in May-2023, despite the ongoing COVID-19 pandemic and the lockdown measures. As per provisional data, urea sales are expected to clock in at 460k tons, up 10% YoY, taking 5MCY23 offtake to 2.5mn tons, down by 1% YoY. On the other hand, DAP offtake for May-2023 is expected to clock in at 63k tons vs. 94k tons in SPLY, depicting a decline of 33% YoY.
The report said that the fertilizer sector remains attractive for investors, as it offers healthy dividend yields, strong earnings growth, and attractive valuations. The report recommended buying FFC, EFERT, and FATIMA.