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Locust attack may be beneficial for agrochemical companies in Indiaqrcode

May. 28, 2020

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May. 28, 2020
>  Most agrochemical companies in India are likely to benefit in FY21 due to additional demand, analysts at ICICI Securities said

>  Companies with strong balance sheets and moats like established brands and distribution will be likely winners

Locust attack in India has triggered concerns over the Indian agriculture sector in the financial year 2021, even as challenges to tackle covid-19 related issues stay.
 
However, the pest attack is likely to create additional demand for agrochemical companies in India. Shares of Bayer Cropscience, UPL Ltd, Sumitomo Chemicals, Insecticides India, BASF, and Rallies India have risen 1-8% in last three days on optimism for the sector.
 
According to analysts, such disruptive events create awareness among farmers and provide stimulus to the use of agrochemicals. Though many insecticides or combinations are used to control locusts, considered one of the most destructive pests in the world, chlorpyrifos is one of the key insecticides. While most agrochemical companies generate some revenues from chlorpyrifos, Gharda Chemicals, an unlisted company, is one of the major players in India.
 
Analysts at ICICI Securities believe most agrochemical companies in India are likely to benefit in FY21 due to additional demand, while companies with strong balance sheets and moats like established brands and distribution will be likely winners.
 
“We also expect such disruptive events to provide stimulus to usage of agrochemicals in India and expect structurally higher growth rates of agrochemicals in India. Companies which continue to innovate and launch new products are expected to emerge winner. The companies with strong moats such as brands and distribution network will continue to benefit," it said.
 
However, shortage of agrochemicals in trade due to lockdown post covid-19 and logistics and transportation issues may not allow faster access of agrochemicals to farmers.
 
As India’s rabi season gets over in March and kharif season commences in June, there is negligible farming in India in this period. Hence, analysts believe that there is no immediate impact on Indian agriculture but if the pest attack remains after June, there will be threat to kharif crops in 2020.
 
The locusts are currently active in Rajasthan, Gujarat, Maharashtra, Uttar Pradesh and Madhya Pradesh. Rajasthan is the worst-affected state, according to the union environment ministry.
 
Locusts, which look like common grasshoppers, come in swarms during dry spells and can destroy massive swathes of vegetation within days.
 
The Food and Agricultural Organization of the UN had also warned that the impact of the locust attack could be far more serious this year than last year. Some countries in East Africa have already declared an emergency because of the loss caused by locusts.

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