Top 20 Indian Agrochemical Companies in FY 2017-18: Backward Integration to secure the future

Highlights of the list:
In the 2017-18 fiscal year, the Indian market underwent the lagged effects of India’s demonetization, the implementation of GST and the reduced supply of raw materials resulting from environmental regulations in China. Rainfall for the year was beyond the average, but the southern states of India still suffered insufficient rainfall, or delays in rainfall. These factors inhibited the business operation of Indian agrochemical enterprises, resulting in the performance below expectations, and also differing the growth between enterprises.

Compared to the year 2016-17, there are still half of the top 20 agrochemical enterprises obtained double-digit growth in 2017-18, while the growth of some enterprises was apparently frustrated.

UPL moved far ahead and maintained its leading position by almost one order of magnitude in the Indian list; meanwhile it is ranking ninth in the top global list. UPL’s dominant products, Glufosinate-ammonium and Mancozeb, remained well-received, in addition to the positive market performance of its fungicides and herbicides, which were newly launched last year. Furthermore, in 2017-18 fiscal year, UPL launched 101 products, 19% of which are innovative products, the highest percentage over the last 5 years. The constant launch of new products is a key driver to the continued growth of UPL. After completion of acquisition of Arysta, UPL is expected to hold a place in the top five in the global agrochemical list next year.

Best Agrochem Group is a new face in the top 20 list, with sales of Rupee 7.46 billion, which indicates the threshold for the list rises from Rupee 5 billion to 7.46 billion now (Heranba).

Sulphur mills reported the fastest growth, having reached a 50% growth rate. The company says that its significant growth is mainly attributable to the price rise of end-use products, increased sales in Latin America, Europe and the US, as well as registrations and launches of new products in other strategic markets.

The total sales of the top 20 companies reveals an overall increase of Rupee 28 billion over the previous year, approximate equal to the total of the last four enterprises on the top 20 list.


Overview of India agrochemical industry in 2017-18

In the 2017-18 fiscal year, there was a positive beginning for Indian agriculture, with favorable climate and a good monsoon forecast. However, due to the uneven rainfall at a later date, the southern parts of India suffered from insufficient rainfall or even drought, which had an impact on sowing and the use of chemicals. As regards crops, cotton and fennel planting areas increased 15%. In some states, Rabi monsoon season rice planting areas decreased considerably due to shortages of water. The Ministry of Agriculture of India estimated an approximate 2.1% food grain increase in 2017 to 2018, having reached 275 million tons.

In respect to its policy, the decision of demonetization of rupee banknotes has had a lagged effect, in addition to the de-stocking action taken by distributors, as a result of implementation of the GST last year. As such, the sales of agrochemical enterprises were inhibited.

From the business side, crude oil prices in India were on the rise last year, which also drove the increase in prices of raw materials. Moreover, China’s environmental policy led to a shortage of raw materials, causing further pressure on the profitability of Indian enterprises that rely upon imports of raw materials from China.

Backward Integration

In view of the 50%, or even doubled price rise of raw materials, Indian enterprises realized the importance of a stable supply to their production needs. As encouraged by the Make in India initiative, more Indian companies adopted the strategy of backward integration.

In the early days since its inception, Bharat Group had been engaged in the sales of formulation products (BIL). After some 10 years, the company established its BRL, which is dedicated to production of pesticide technical and intermediates in support of formulation products. Today, BRL has grown and surpassed BIL. At present, the group is making further investment in construction of factories to produce more pesticide technicals and intermediates products.

UPL has now adopted the strategy of “backward integration” as the top priority among the “7 priority strategies” of the company. The company is currently working on “backward integration” to ensure a self-sustained supply of key raw materials to guarantee the needs of production are met for major fungicides and herbicides, thus being less dependent upon third supplies. In 2017-18 fiscal year, UPL opened 10 factories in India and Brazil, including 3 pesticide technical production plants.

Heranba mainly produces pyrethroids. Due to the impact from the decreased supply of raw materials in early 2017, the company built its own plant to produce MPBD to meet its production needs. Besides its own use, the company is now exporting MPBD to international markets.

Rallis imports 40% of its needed agrochemical raw materials from China, having been seriously impacted by the situation of short supplies from China. In early 2018, the company announced an investment plan in backward integration to cope with the short supply situation, which is expected to reduce the impact to the company's profits.

Meghmani Group reported a 20% sales growth last year, which is benefited from the long-standing advantage of backward integration of the company. Its branch, Meghmani Fine Chem, has sufficient capacity for production of the two major raw materials - Chlorine and Sodium Hydroxide; the output of the key product 2,4-D of the group could still remain at some 10,000 tons due to reduced supplies worldwide.

Moreover, some formulations enterprises, such as Dhanuka, Insecticide India and Krishi Rasayan Group, have begun to build pesticide technical factories during the last two years.

Meanwhile, other companies conducted backward integration via direct acquisitions, thus being less dependent on outsourced supplies.

In 2016, Best Group acquired the pesticide technical plant of Arysta, which is a strong backup to the production of formulations of the company.

Additionally, Sulphur mills acquired the pesticide company R3 crop science, thus having obtained production lines of the popular pesticides Chlorpyrifos, Pendimethalin and Thiamethoxam. On this basis, the company could undertake more research into new compounds, while conducting extensions and backward integration of existing products.

The backward integration strategy of Indian companies is expected to effectively increase the pesticide technical production capacity in India.

According to DCPC of India, the output of pesticide technicals (57 products) in 2016-17 increased 14% over the previous year, having exceeded 200,000 tons for the first time in history; the output of pesticide technical (57 products) of the 1H 2017-18 (up to September) already reached 110,000 tons, which is slightly higher than the same period in 2016-17. According to an analysis by DCPC, a further 33% capacity has yet to be brought on stream.



Prospect

In the 2018-19 fiscal year, with the expectation of good monsoons, the Indian Government has raised the minimum support prices for crop products. Industry experts believe that a stable growth will be achieved in the Indian agrochemical industry this year. The global short supply of raw materials not only brings pressure on Indian enterprises, but also offers more opportunities for development. In the transformation and upgrading process via backward integration, Indian enterprises are changing from a global formulation product supplier into a technical supplier, and will have a stronger influence in the international market. The backward integration strategy of Indian enterprises is a best implementation and practice of the Make in India initiative of Indian Government.