Healthy rains, better crop acreage drive earnings upgrades of India agrochemical firms
Jul. 9, 2020
> Domestic seed companies are projecting double digit growth in sales, reflecting benefits of higher crop acreages
> Channel checks by analysts reveal strong product placements by agrochemical companies
Earnings upgrades are rare in a covid-19 ravaged economy. But thanks to better monsoon rains and healthy farm sentiments, agrochemical companies are seeing upward revision in earnings estimates.
“While most industries are staring at a grim future due to covid-19 induced uncertainty, we believe the domestic agriculture-inputs industry has entered a conducive growth phase after languishing in the tepid growth zone for the past three years," says analysts at Edelweiss Securities Ltd.
As of 3 July, kharif crop sowing is 88% higher than the previous year’s levels. Timely onset of monsoon and better water availability are driving crop acreages.
Kharif crop sowing took-off on a strong note this year, helped by timely onset of monsoon rains and better water availability
Fertilizer sales grew 22.7% in the first quarter (Q1 FY21) of the current fiscal, data compiled by Prabhudas Lilladher Pvt. Ltd showed. Domestic seed companies are projecting double digit (15-20%) growth in sales, reflecting benefits of higher crop acreages, points out analysts at Edelweiss.
Similarly, channel checks by analysts reveal strong product placements (shipments to retailers) by agrochemical companies. “Q1FY21 is expected to be one of the best quarters in last 5 years despite lockdown resulting into production, labour availability and logistics issues. We expect industry growth of +20% for Q1 driven by massive surge in herbicide sales, pre-buying led by robust demand expectation and ~5% price increase in generic molecules," analysts at Prabhudas Lilladher said in a note.
Antique Stock Broking Ltd revised its earnings estimates for Bayer CropScience Ltd and Rallis India Ltd (for the current and next fiscal years) upwards by 7-11%. “We keep our estimates unchanged for the remaining coverage universe as we already stand ahead of the consensus," analysts at the brokerage said in a note.
Antique expects domestic focused companies such as Bayer CropScience, Dhanuka Agritech Ltd and Rallis India to report superior growth. Growth at export focused firms such as PI Industries Ltd, Sharda Cropchem Ltd and UPL Ltd may be weighed down by logistics constraints.
More clarity will emerge when the companies release their June quarter financial results. Stocks, meanwhile, reflect optimism. Bayer CropScience and Rallis India gained 59-67% so far this calendar year and have hit new 52 week highs in recent weeks.
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