 "India-focused agri-input players with strong balance sheet better placed")
Shares of agri input firms like PI Industries, UPL, Rallis India, and Coromandel International have rebounded by up to 36 per cent from their closing lows in March. Earlier, they had declined by as much as half.
While news of an expected normal monsoon has lifted sentiment on assumptions that it could improve the kharif season prospects, the rabi season gone by was also good in terms of higher output. However, there are concerns that may weigh on share prices.
Covid-led disruption and the resultant delay in crop procurement; a fall in prices of agri produce that may hurt income and purchasing power of farmers; impact on demand for agri-produce; and the disruption in export markets are major worries.
Analysts, therefore, believe India-focused agri input players, with strong balance sheets, are better-placed. The optimism stems from the fact that domestic demand for agri input firms may not be significantly impacted by the lockdown as this is usually a lean season, and sowing for the kharif crop being in June.
Analysts also hope the logistical concerns surrounding distribution of products get resolved in the next two months. Earlier concerns over raw material supplies are also easing with the recovery in China’s production and supplies.
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The same holds true for domestic fertiliser players. Part of their production, though, may get impacted as both urea and non-urea producers have shut operations.
These shutdowns though coincide with the planned annual maintenance, say analysts. Since there already is channel inventory for meeting 20-30 per cent of kharif season requirements, supply cuts should not hit much.
Agrochemical exporters such as UPL and Sharda Cropchem, too, have corrected significantly. Though the low valuations may limit further downside, exports may see some disruption, says an analyst at a domestic brokerage. Analysts also say the lack of clarity on the quantum of supply chain disruption, in key markets of North/Latin America and Europe, remain. Export-dependent firms may, therefore, see growth constraints in FY21. Global agrochemical prices, however, remain stable with the Chinese market recovering, which provides some comfort. Timely harvest and procurement of the rabi crop will be key for agri input players.
In case of delayed procurement in domestic markets, Varshit Shah at Emkay Global feels companies with strong balance sheets (B/S) are well-placed to push sales on credit and gain market share.
PI Industries, Coromandel International, and Rallis India have good B/S but uncertainty over exports (for all three) and the overhang of a QIP (to fund acquisition; for PI) could weigh on near-term prospects.