As per latest notification under S.R.O No.607(I)2022 by Ministry of Industries & Production, Urea prices are now being fixed at Rs1,768/bag from the existing price of Rs1,900-2,000 per bag. Provinces and federal agencies are allowed to add an allowance to the notified prices for extra transportation costs in remote or distant areas as per the notification. 

The said SRO will remain effective till Jul 07, 2022 unless rescinded or modified earlier. However, concerned producers, dealers or importers are given an opportunity to offer their view and justification along with submission of relevant documents, data and information by May 27, 2022 on the recent increase in prices by fertilizer manufacturers. Fauji Fertilizer (FFC), Agritech, Fatima Fertilizer (FATIMA) increased Urea prices by Rs165/bag whereas Engro Fertilizer (EFERT) raised prices by Rs249/bag since Mar-2022 due to inflationary impact.

As per the notification, government observed that recent price increase of Urea was totally unjustified and without any valid reason and can adversely affect the farmers and Urea application in ongoing Kharif season.

We believe the industry is likely to provide justification to government of hike in Urea prices and may challenge the said SRO in the court of law. They can say that government should not interfere in free market where price is determined by supply and demand situation & they have passed on inflationary impact to Urea prices.  

We also believe that huge delta between local and international prices (local prices are 70-80% cheaper than international prices) can lead to more smuggling and shortage of Urea in domestic market hence maintaining local prices at current levels may not be sustainable. 

We have presented sensitivity of reduction in Urea prices and its earnings impact below.

Courtesy – Topline Securities