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Home  » Business » Predictions of normal monsoon boost prospects for domestic agrochem firms

Predictions of normal monsoon boost prospects for domestic agrochem firms

By Ram Prasad Sahu
April 25, 2024 14:59 IST
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With a normal monsoon predicted in India this year by private weather forecasting agency Skymet and the India Meteorological Department (IMD), prospects for domestic agrochemical or agri-input companies are expected to improve.

Agrochem

Illustration: Dominic Xavier/Rediff.com

Brokerages believe that domestic companies will outperform exports in the March quarter (Q4 FY24) and in FY25.

Demand for agricultural inputs was weak in the December quarter due to elevated channel inventory, higher imports from China and pressure on realisations, which weighed on margins.

Sentiment in the rabi season was impacted by below-normal rainfall and lower reservoir levels.

 

There could be some improvement in the March quarter.

Nuvama Research expects domestic agrochem players to report healthy growth in the March quarter, while fertiliser and global agrochem players are likely to see lacklustre performance.

Drilling down, fertiliser players may face margin pressures due to reduced subsidies, and global agrochem players due to inventory destocking and higher rebates/discounts.

Rohan Gupta and Rohan Ohri of the brokerage remain positive on domestic agri-input players, such as Dhanuka Agritech, while they recommend avoiding fertiliser players such as Coromandel.

They also have a negative view on global agrochem players such as UPL and Sharda Cropchem.

Given the margin pressure, the two firms are likely to see losses in Q4 FY24 and risk earnings downgrades in FY25.

Elara Securities believes that Q4 will be weak for both domestic and global players, but is positive on the FY25 prospects of domestic companies.

Prashant Biyani and Ujwal Wadighare of the brokerage said, El Nino is nearing its end and La Ni a is likely to set in this monsoon, according to the Bureau of Meteorology, Australia.

We believe La Ni a will be positive for domestic agrochemicals as well as fertiliser companies as a better monsoon will lead to higher volume growth.

While Q4 is likely to remain soft, the analysts are positive about the prospects of domestic agri-input companies from FY25.

This is due to expectations of a better monsoon and a higher declared nutrient-based subsidy in the first half of FY25.

Even as domestic players could see a recovery going ahead, exporters and companies with large overseas operations could face headwinds.

Harmish Desai of PhillipCapital Research said that persistent high-channel inventory in international markets continues to impact performance.

Q4 performance is expected to be weak due to price declines and persistent inventory issues, mostly in international markets.

IIFL Research is cautious on fertiliser players given the cut in nutrient-based subsidy, which may dent their profitability.

The fourth quarter is off-season for fertilisers, and hence, the companies will see subdued performance.

This comes as low volumes and a lower nutrient-based subsidy rate will continue to dent profitability.

However, a correction in raw material prices bodes well.

It will help companies register sequential improvement in profitability, according to Ranjit Cirumalla and Viral M Shah of the brokerage.

Order deferments to the fourth quarter will aid sequential growth for agri intermediate companies like SRF, Navin Fluorine, and Anupam Rasayan, while PI Industries will continue to show strong year-on-year (Y-o-Y) growth.

Sharekhan Research expects both domestic and global agri-input players to be impacted by inventory destocking and lower product pricing, which will severely hit earnings.

They expect most companies to report subdued financial performance, mainly due to weak show in exports, and excessive capacity in China.

Lower product prices will also result in Y-o-Y margin contraction for most companies in the space, according to the brokerage.


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Ram Prasad Sahu
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