The A V Birla group's decision to consolidate its holding in Indo Gulf Fertilisers at a huge premium to the market price triggered a rally across fertiliser stocks today.

Indo Gulf Fertilizers, itself, soared 13.6% to Rs 67.25 on BSE in late afternoon trades. Around 2.9 lakh Indo Gulf Fertilizer (IGFL) shares changed hands on BSE thus far.

The A V Birla group, through TGS Investments & Trade Private Limited, today  announced an open offer to acquire 20% stake in IGFL at a price of Rs 75 per share, a 27% premium to the scrip's ruling market price of Rs 59.15 (Monday's closing price of the scrip on BSE).

Public sector fertiliser major National Fertilisers (up 20% to Rs 50.45) was the most noteworthy gainer in the fertiliser sector, however. Other major gainers were Nagarjuna Fertilisers (up 19.87% to Rs 7.60), Zuari Industries (up 16.4% to Rs 30.05), SPIC (up 15.2% to Rs 8.90), Mangalore Chemicals (up 10% to Rs 6.05), GSFC (up 9.3% to Rs 25.25), Godavari Fertilisers (up 5% to Rs 71.20), FACT (up 4.8% to Rs 32.60), Deepak Fertilisers (up 4.6% to Rs 26.15), Chambal Fertilisers (up 4% to Rs 16.65), GNFC (up 3.9% to Rs 35.90), Coromandel Fertilisers (up 3.6% to Rs 71.35) and RCF (up 3.3% to Rs 35.65).

Fertiliser scrips are moving strong as of now on expectations that a normal monsoon is on the cards this year. The fortunes of the fertiliser sector are heavily linked to the monsoon. The combined market cap of 23 fertiliser companies surged 7.9% to Rs 8,369.03 crore from Rs 7,754.53 crore on BSE in the last one month ended 23 June 2003 .

Fertiliser scrips like RCF, National Fertilisers and  Madras Fertilisers are also witnessing increasing action due to the divestment initiatives taken up by the Centre. The government recently put on the block its 51% stake in RCF by way of strategic sale. It has appointed advisors for this purpose. The government has also commenced with a divestment initiative in Madras Fertilisers.

The broad based rally in fertiliser makers has manifested today after IGFL's open offer pricing.  The offer at Rs 75 per share was based on a PE multiple of 5.70 (the industry PE multiple is 4.9). This has given the market the indication that fertiliser stocks are lowly priced.

IGFL is amongst the most cost-efficient producers of urea in the country today.

While the short term demand for fertilisers would stem from a good  monsoon this year, the long term outlook for the fertiliser sector is promising, according to analysts. The continuing growth in population and growing demand for food grains calls for continuous growth in agricultural production.

However, given the increasing level of urbanisation and limited availability of fresh land for cultivation, the only viable alternative is to increase farm productivity. The optimum use of farm nutrients is crucial to increasing farm productivity and therefore implies that fertiliser consumption in the coming years will increase.