Agri input companies on fertile ground

The sales of agri inputs have jumped by 10-15% this year on rising consumption from farmers

Agricultural input companies are expecting better prospects two quarters ahead due to a jump in demand from farmers on an increase in acreage this year. A better than expected climate following an almost evenly spread monsoon rainfall suited rabi sowing after two years of drought.

Seed, fertiliser and agrochemical companies have reported a turnaround in demand this rabi season after a robust kharif. Their sales have jumped 10-15 per cent this year. And in a major support for farmers, raw material costs, including urea, natural gas and di-ammonium phosphate, have declined by up to 30 per cent. “The Indian fertiliser sector had faced multiple headwinds between 2012-13 and 2015-16. High international raw material prices, a volatile currency, excess channel inventory, high subsidy receivables, a bad monsoon and policy paralysis weighed on the sector. Earnings contracted by as much as 50 per cent for key players like Coromandel International,” said Satish Mishra, an analyst with HDFC Securities.  “The situation started easing in 2016 with a fall in fertiliser and natural gas prices and a normal monsoon. We expect no risk to margins owing to the drop in farmgate prices. 

Lower farmgate prices will lead to higher consumption of complex fertilisers. Therefore, the near-term outlook remains strong with expectations of favourable announcements in the Union Budget,” he added.

The agriculture ministry estimates a five per cent increase in acreage at 61.62 mn hectares till Jan 13, up from 58.19 million hectares by the same time last year. Barring rice and coarse cereals, the sowing area has jumped across all rabi crops, including wheat, pulses and oilseeds. “Sales of seeds, fertilisers and agrochemicals are reasonably good during the ongoing rabi season. The temperature in north India is quite high due to which consumption of herbicides in the wheat crop was affected. 

However, yields are much better this year and it is expected that India will have a record grain production this year,” said MK Dhanuka, managing director, Dhanuka Agritech.

Satish Kagliwal, managing director, Nath Seeds, said, “A normal monsoon this year helped with consumption of inputs this rabi season. Agricultural input companies will see a better topline this year.” A study by Religare Capital Markets released last week forecasts 9-23 per cent increase in 2016-17 revenue of Bayer Cropscience, PI Industries, Rallis India, Sharda Cropchem and United Phosphorus. 

The profitability of these companies has also been forecast to increase by up to 25 per cent in 2016-17.

“We think structural long-term growth drivers for India’s agrochemicals industry are in place. These include rising farmer income, declining arable land, low penetration of agrochemicals, mounting labour costs and poor crop yields,” said Manish Mahawar, an analyst with Religare Capital Markets.