Agri input firms likely to earn robust profits in Q3 ahead of rabi season

Companies making agricultural inputs are set to post better profits in the December quarter due to rising demand of seeds, agro-chemicals and fertilisers in the rabi season.

The trend is likely to continue in the second half of the financial year with both the top and bottom lines of farm input companies expected to witness robust growth. The first half of the year was affected by inventory buyback in the run-up to the imposition of the goods and services tax and delayed monsoon rainfall.

Rabi sowing was marginally lower at 60.95 million hectares on January 12 than 61.51 million hectares a year ago, yet satisfactory due to the increased water level in reservoirs and adequate soil moisture because of last year’s late monsoon rainfall.

“The increase in the minimum support price will lead to better farm incomes and will boost spending on agrochemicals. Exports are also likely to pick up with an improvement in global farm commodity prices,” said Basanth Patil, an analyst with HDFC Securities.

Companies like PI Industries, Dhanuka Agritech, Rallis, United Phosphorus and Insecticides India are likely to report 10-12 per cent top line growth in the December quarter and slightly lower growth in the March quarter. Of these, Insecticides India and Dhanuka Agritech are expected to report healthy growth.
 

After a weak offtake in the September quarter, demand picked up in the December quarter due to low channel inventory, higher soil moisture content and improvement in reservoir levels in south India. Industry-wide sales of complexes are likely to increase by 12-14 per cent, year on year, in the December quarter, led by a sharp rise in sales of indigenous fertilisers. Urea sales are likely to grow by 8-10 per cent, year on year, led by higher imports. 

The government estimates total farm output at 275.68 million tonnes in 2017-18, equivalent to last year and a marginal increase from the target 274.55 million tonnes.

Globally, prices of fertilisers such as urea and di-ammonium phosphate are rising while prices of the muriate of potash have stabilised during the previous quarter. Prices of key raw materials such as phosphoric acid, ammonia and natural gas have also started to firm up and are likely to exert pressure on companies’ margins unless the government increases the subsidy or allows companies to raise prices.