Whalesbook
Government Support and Persistent Pressures
The Indian government has increased subsidies for the Kharif season to help farmers manage higher input costs. Yet, persistent geopolitical events in the Middle East continue to create supply chain uncertainty and price pressure. This situation is worsened by the forecast for a below-normal monsoon in 2026, threatening agricultural output and fertilizer demand.
Rising Raw Material Costs Squeeze Margins
Fertiliser makers are seeing steep price hikes for key materials. Ammonia is up 30% and sulphur is up 21% from the previous quarter. Phosphoric acid prices remain high at $1,360/t P2O5 cfr India for Q2 2026. These cost increases, especially for companies relying on imports, are reducing profit margins. India imports about 75% of its ammonia and 53% of its sulphur. Middle East conflicts have disrupted sulphur supplies, pushing April 2026 prices to $600/t fob Ruwais, up $70/t from March. Ammonia futures also show this volatility, with Middle East FOB prices reaching $590/tonne for April 2026 delivery due to ongoing conflicts.
Government Subsidies and Company Strategies
The Government of India approved a 10% subsidy hike for nitrogen, phosphate, and sulphur fertilizers for H1 FY27, allocating ₹41,500 crore. This increase offers some relief but may not fully offset the soaring raw material costs, especially for importers. Coromandel International, with diversified supply chains and backward integration, appears better positioned. The company also acquired a 53% stake in NACL Industries in March 2025. Analysts rate Coromandel a 'BUY' with a target of ₹2,617.00. UPL Limited is restructuring, planning to demerge its global crop protection business by April 1, 2026. Analysts rate UPL 'OUTPERFORM' with a target of ₹820.53, though the stock is currently 'Hold/Accumulate'. Deepak Fertilisers & Petrochemicals Corporation saw a 7.03% stock rise on April 1, 2026, with analysts rating it a 'BUY' and targeting ₹1,695.0. Chambal Fertilisers & Chemicals, mainly a urea producer, is exposed to natural gas price swings. Analysts give it a 'Buy' recommendation and target price of ₹559.50.
Monsoon Forecast Adds to Sector Challenges
A poor monsoon forecast for 2026 adds to the sector's problems. Skymet Weather predicts a 'below normal' monsoon, with only 94% of the average rainfall expected due to El Niño. This increases the chance of drought and could hurt crop yields and demand for fertilizers. Such conditions might worsen food inflation, creating broader economic concerns. While government subsidies offer some help, the sector's heavy reliance on imported ammonia and sulphur, combined with geopolitical risks, means price swings and supply issues remain major concerns. P/E ratios vary: Chambal Fertilisers at 7.63, Coromandel International at 23.55, UPL at 23.86, and Deepak Fertilisers at 14.19, showing different views on their future performance.
Outlook for Fertiliser Sector
India's fertiliser and agrochemical sectors face a mix of geopolitical risks, volatile commodity prices, and climate uncertainty. Government subsidies are a positive factor, but the sector's performance depends on stable global supply chains, domestic production efficiency, and the extent of the monsoon shortfall. Companies with strong operations, backward integration, and varied sourcing plans are likely to perform better. Those heavily reliant on import prices and facing possible demand drops could struggle more.