Agri input cos eye double-digit growth on favourable monsoon, govt policies

After three years of muted growth, agri input companies are eyeing a double-digit sales jump in the current kharif sowing season due to timely start and evenly distribution of the south west monsoon rainfalls, which triggered 30 per cent increase in acreage in June 2020.

Agri input companies faced multiple challenges like demonetisation, erratic monsoon and low prices of agri produce which battered farmers’ profitability and cash flows, leading to poor demand for agri inputs like fertilisers and pesticides. Their revenues, therefore, clocked a mere 5.8 per cent compounded annual growth rate (CAGR) between FY17 and FY19. But now their revenues are expected to grow 12-15 per cent and net profit by 30 per cent in FY21.

However, market has discounted all these factors. In fact, the initial problems faced with factories operating with below 50 per cent of the installed capacity in the beginning of nationwide lockdown due to labour shortage and piling up inventory at the factor because of the transport disruptions in April and May, agrochemical companies have restored their most of decline in production capacity in June.

While most industries are staring at a grim future due to Covid-19-induced uncertainty, agri input companies have entered a conducive growth phase after languishing the past three years. This change of fortunes is driven by a bumper rabi crop boosting farmers’ cash flows, higher agri commodity prices, aggressive government steps to buoy rural India’s prospects and expectation of a normal monsoon,” said Rohan Gupta, an analyst with Edelweiss Securities Ltd.

The forecast triggered by an emphatic growth in overall acreage area this year. Data compiled by the Union Ministry of Agriculture showed India’s total sowing area increased by a staggering 30 per cent by June 26, thanks to the evenly spread of the monsoon rainfalls which covered entire country 12 days ahead of schedule this year.

The ministry data showed total sowing area this year at 31.56 million ha (around 31 per cent of normal area for the entire year) by June 26 compared with 15.45 million ha covered by the same time last year. Agro climatic condition was different last year with the seasonal rainfalls delayed by over three weeks and ended with normal with the long period average (LPA). Interestingly, the highest increase in sowing this year was recorded in oilseeds (8.33 million ha versus 1.33 million ha) and pulses (1.94 million ha versus 0.6 million ha). The increase in kharif acreage points to yet another season of bumper agri harvest this year.

In yet another testimony to the agri boom, the fertiliser sales in May more than doubled. Data compiled by the Department of Fertilisers under the Union government indicated nutrient fertiliser sales at 4 million tonnes in May 2020 compared with 2.02 million tonnes in the corresponding month last year and 2.26 million tonnes in 2018.

“In April this year, the Cabinet Committee on Economic Affairs (CCEA) fixed nutrient based subsidy on potassium and phosphate (P&K) based fertilisers. This enables manufacturers and importers to formalise supply contracts to make fertilisers and their raw materials available to farmers at affordable price,” said Madan Sabnavis, Chief Economist, Care Ratings.

The Indian Meteorological Department (IMD) has reported 22 per cent surplus rainfalls of LPA by June 24 as against 26 per cent deficit by the same time last year.

"Being an agro-industry, the government allowed us functioning during the Covid pandemic. Hence, the impact of lockdown was not much on our sales. With this year's favourable monsoon forecast coupled with a slew of initiatives announced by the government, the company is hopeful of positive performance in 2020-21," said M K Dhanuka, managing director, Dhanuka Agritech.