By B Krishna Mohan Jan 29 2013 , Hyderabad
When direct cash transfer comes into play, the fertiliser players, who have their own retail outlets, will be better placed to handle higher inventories, according to S Sankarasubramanian, chief financial officer, Coromandel International, which is into fertilisers, speciality nutrients, crop protection and retail.
Direct cash transfer of subsidy to farmers will help the working capital cycle of fertiliser companies, he said. “But, there will be pressure on the dealer network to pay full costs for fertiliser stocks as the subsidy component will be paid directly to the farmers,” he told Financial Chronicle, while speaking on what cash transfer scheme will mean to fertiliser industry.
“This will lead to a kind of credit squeeze to that extent,” he said, adding that the credit requirement from dealers will be high for maintaining the inventory.
On the other hand, companies with their own retail chains can be efficient with the capital deployment as there will be no pending subsidy bills for the companies, he said.
With direct cash transfer, the onus of subsidy handling will shift away from the fertiliser companies calling for an efficient banking system to handle large number of farmers or farmer families, he pointed out, adding that identification of target farmers will be a challenge and the UID card will be a crucial tool in this.
“There will be a need for a post sale data across the industry for delivering the subsidy,” he said, adding that seasonal changes will affect the fertiliser demand even as the movement of prices in the international markets will be the key determinants for the quantum of subsidy.
For instance, the DAP prices are softening in the global market but the domestic urea prices are likely to see an increase. The present subsidy on the DAP is about Rs 14,350 per tonne.
According to an investor presentation last year, the subsidy component for Coromandel International had been Rs 1,626 crore in 2012, Rs 969 crore in 2011, Rs 508 crore in 2010 and Rs 947 crore in 2009. It revenues were Rs 9,823 crore, Rs 7,639 crore, Rs 6,452 crore and Rs 9,408 crore in 2012, 2011, 2010 and 2009 respectively.