Fertilizer Sector Growth Analysis: Top 5 Stock to Buy in 2024

Fertilizer Sector Growth Analysis: Top 5 Stock to Buy in 2024

In recent months, we've tried to cover multiple blogs covering various industries, each fueled by the government's strategic budget allocations. One sector that has been quietly making waves is the fertilizer industry. In this blog, we'll break down the government's recent investment spree, why it matters, and highlight some exciting stocks in this blooming sector.

In 2024, the estimated size of the India fertilizer Market is USD 43.32 billion, projected to grow to USD 62.83 billion by 2030. This growth is anticipated at a Compound Annual Growth Rate (CAGR) of 6.39% throughout the forecast period from 2024 to 2030. 

 

Government Initiative:

Picture this: The government sets aside a decent amount of money in the budget for different sectors. Fast forward a bit, and there's a call for even more investment. Why? Because the initial estimate wasn't enough due to unforeseen spikes in expenses for food and fertilizer subsidies and rural development guarantees.

 

So, what does the government do? It goes to the Parliament's door for approval, seeking an additional 1.29 lakh Crores. Now, that's a substantial top-up to the 1.75 lakh Crores already earmarked in the budget for the Fertilizer sector in the fiscal year 23-24.

 

Detailed Video

 

Recent updates in Fertilisers?

Why does the government need this extra dough for fertilisers? It turns out that the budgeted amount for food and fertiliser subsidies exceeded expectations. So, the government is on a mission to bridge the gap by getting additional funds.

Now, here comes the interesting part. The government is pumping a considerable portion of this money into the Fertilizer sector, signalling a growing demand for fertilisers. Why? Because these subsidies help farmers get fertilisers at prices lower than the Maximum Retail Price (MRP), fostering increased revenue and profits.

 

Key Highlights:

1.Product Dominance: Boron

The fastest-growing segment is Boron, crucial for soils in the Eastern and North-Eastern parts of India. Boron application enhances food production, ensuring food security.

2.Crop Type Leadership: Field Crops

Field crops take the lead, representing over 95% of the total crop area. The dominance is attributed to their extensive cultivation throughout the country.

3.Specialty Type Growth: Water Soluble

Water-soluble fertilisers, the fastest-growing in the specialty category, offer a wide range of nutrient grades. They provide flexibility in application methods, including foliar, fertigation, and soil application.

4.Application Mode Preference: Soil

The conventional soil application method stands as the largest segment by application mode. It is a simple yet effective way to apply fertilisers without specialised equipment, promoting both plant health and soil fertility.

 

 

 

Market Trends:

1.Field Crops Rule the Roost

Field crops dominate the market, constituting 91.37% in 2021 and projected to grow at a CAGR of 5.13%. Rice, a major NPK-consuming crop, plays a pivotal role in driving fertiliser demand.

2.Horticulture on the Rise

Horticultural crop fertilisers witness a notable uptick, accounting for 8.5% of the market in 2021. The increase in horticulture cultivation area contributes to rising fertiliser consumption for higher yields.

3.Focus on Turf and Ornamental Crops

The turf and ornamental crops fertiliser market, though a smaller segment, experienced a significant uptrend of 65.2% in market value. Government initiatives promoting self-sufficiency, including strategies like greenhouse ornamental flower production, are expected to boost this market further.

Stocks on watch:

Now that we know there's a buzz in the fertilizer sector, let's zoom in on some companies that are likely to ride this wave.

1. Gujarat State Fertilizers & Chemicals Ltd. (GSFC):
This government-promoted company is making waves with its impressive return of 133% last year. With a low PE ratio compared to the industry, debt-free status, and consistent profit growth, GSFC seems to be in a sweet spot.

2. Rashtriya Chemicals and Fertilizers Ltd:
As a public sector undertaking (PSU) with significant government holdings, this company distinguishes itself with a lower PE than the industry. Its robust profit growth further solidifies its standing as a strong performer in the fertilizer sector.

3. Deepak Fertilisers & Petrochemicals Pvt. Ltd:
Operating across multiple sectors, this diversified company boasts an attractive PE ratio and a commendable track record of profit growth. Its versatility positions it as one to watch amid the evolving landscape.

4. Mangalore Chemicals & Fertilisers Ltd:
Demonstrating consistent profit growth over the years, this company exhibits a low PE ratio compared to the industry. Recent debt reduction further underscores its strategic positioning for future growth.

5. Southern Petrochemicals Industries Corp Ltd:
Specializing in the manufacturing of urea and nitrogenous chemical fertilizers, this company stands out with a lower PE than the industry. Its improved profit margins add another layer to its potential for growth.

 

 

Conclusion

So, what's the takeaway? These fertilizer sector stocks are trading below their industry peers, making them potentially lucrative investments, especially with the government injecting substantial funds into the sector.

As the government's CAPEX (capital expenditure) signals a vote of confidence in the fertilizer industry, these companies could be on the verge of significant growth. Keep an eye on them, and let us know your thoughts on this fertile ground for investments!

Disclaimer:

Please note that this blog is not any recommendation for buying or selling any stock. We always encourage the reader to do their research before investing in any stock.