At a press conference yesterday, Chemical and Fertiliser Minister Ananth Kumar announced that the price of DAP has been reduced by Rs 125 a bag of 50 kg (Rs 2,500 reduction per tonne), MOP reduced byRs. 250 a bag of 50 kg (Rs 5,000 reduction per tonne) and NPK reduced on an average by Rs. 50 per 50 kg bag (Rs 1,000 reduction per tonne).

This contravenes the motive of Nutrient Based Subsidy Policy (implemented in FY11), which gave fertilizer companies full freedom to tweak retail prices of complex fertilizers free from any government intervention. According to Satish Chander of the Fertiliser Association of India (FAI), this reduction has been accepted by only couple of companies which are Government owned, RCF and NFL, and have cumulatively less than 5% share in complex fertilizer. The private companies have not agreed to reduce prices without being compensated by an equivalent amount of subsidy. (http://www.moneycontrol.com/news/business/who-said-fertiliser-cos-have-reduced-prices-asks-fai_6982121.html)

Though this announcement alone might not have a major impact on volumes of private companies if Monsson turns out to be a good one. However, directionally this speaks volumes about Government's intention to benefit farmer even at the cost of shaking the viability of domestic industry. We view this as Government indirectly regulating prices of complex fertilizers which could lead to de-rating of the space.

Globally raw material prices haven't come down much due to cartelization, however due to stress in many major geographies large scale dumping, specially for DAP, is happening in India. If Government were to promote imports due to lower cost, this can prove negative for Coromandel as capacity utilization levels will go down further leading to operating de-leverage. Though DAP is only 10% of the overall volumes for Coromandel, it may have ripple effect on complexes too.

While initiating coverage, we had opined that whatever that could go wrong for this sector seems to have gone wrong and hopefully there are good times ahead. An important condiseration which we missed was Government's renewed focus on 'Bharat', for which apparently they don't even mind contravening their own policy.

The stock has corrected over 10% today on high volumes and could continue its slide until there is some clarification from Government.

Anyways, the fortunate part is that we have our lowest allocation(3%) to Coromandel and we will revisit it once there is more clarity on the announcement and/or if stock breaks 200, to assess if we should add more.

For now, there is no change in rating i.e. please continue to HOLD.