Improvement in rainfall intensity starting August is likely to offer respite to agri input companies, which had posted a soft performance during the June quarter due to the delayed monsoon. Rainfall has moved from a deficit of 33 per cent in June to an excess of two per cent the past two months. Due to this, the sowing deficit has also fallen to two per cent year-on-year from 26 per cent at the end of June, suggests Edelweiss’ data.
The increased sowing is good news for agri input players, and should result in a better performance in Q2. The June quarter was one of the weakest, and most domestic agrochemicals companies, save Dhanuka Agritech, had reported a decline in sales. While their global operations did well, players such as UPL, PI Industries and Rallis reported a 3-13 per cent YoY decline in domestic sales during the June quarter. The average sales decline in domestic sales stood at 7.7 per cent for agrochemicals players suggests analysts’ data largely led by deferment in crop sowing and consequently soft sales of agrochemicals.
While analysts at Antique Stock Broking expect the agrochemicals industry to grow at mid to high single digit during September quarter, their performance moving forward should also improve with higher water reservoir levels. The industry, too is confident to grow at a healthy pace in second half of FY20, on account of upbeat outlook for Rabi crop and low base of previous year, say analysts.
The fertiliser companies, too are expected to benefit with a pick up in monsoon coming at an opportune time. August and September are important months for fertiliser consumption and volume uptick will address growth and inventory concerns, feel analysts. The correction in raw material prices (phosphoric acid, rock phosphate, ammonia and sulphur prices; down up to 30 per cent) should lift their margins too.
Among companies, Coromandel International getting environmental clearance for expansion of its chemical fertiliser manufacturing plant bodes well too. Not surprising then, Coromandel along with Dhanuka Agritech remain picks of analysts at Edelweiss.
For players with global presence, challenging weather conditions persist in North America and Europe. However, UPL is expected to continue benefitting from its strong growth in LATAM, feel analysts. A diversified geographical presence had helped the firm post a strong Q1 performance. Further, despite flat growth outlook globally CSM/CRAMS players (PI Industries & SRF) remain upbeat about near-term growth.
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