India Agrochem Investments Surge – Exports to Gain Momentum Further

Traditionally, Indian agrochemicals sector has been stereotyped as the lowest pesticide consumer per hectare globally (~0.6kg/ ha) as against the world average of ~2.6kg/ ha. Although, agrochemicals penetration has been increasing, it seems a long way before the pesticide consumption per hectare in India moves up meaningfully. Nonetheless, slowly, Indian agrochemicals exports have gained significant traction with 12.7% exports CAGR over FY16-21 propelled by 11.6% volume CAGR. With lower Chinese agrochemical manufacturing activity, a sizable exports opportunity has opened up for the Indian agrochemical players. Looking at the Indian agrochemical export-import trends vis-à-vis Chinese pesticide manufacturing it can be ascertained that India has all the elements to participate meaningfully in the China+1 strategy adopted by global players.

China agrochemicals enterprises have been suffering from environmental/ safety concerns since 2015 impacting the availability of agrochemicals from the Chinese enterprises. On the contrary, over the same period, favourable market dynamics has befitted the Indian agrochemical manufacturers which have been able to report normal profitability (unaffected by product price distortions). Favourable financials, led the Indian agrochemical manufacturers to invest into capacity additions to cater to both domestic and exports demand.

Indian agrochem exports rising continuously

During FY21, Indian agrochemical exports reached US$ 3.6bn from US$ 2.0bn in FY16, growing at 12.7% CAGR. Among the export trading partners, Brazil at ~25% of total agrochem exports had a lion’s share, closely followed by USA (~18.0%), while Japan, Vietnam, and China representing amongst the top 5 exports destinations in FY21. Together, the top five export destinations accounted for ~52% of overall exports.

1H 2021 Exports surged ~27% YoY
Source: Ministry of Commerce, India

Brazil – The Biggest Agrochemical Export Destination for India
Source: Ministry of Commerce, India

Reliance on agrochem imports gone up too

Despite rising Indian agrochem exports, reliance on agrochem imports has gone up too, doubling over FY16-21 period from US$ 0.84bn to US$ 1.67bn. Due to unavailability of some of the key starting materials (KSMs) domestically, import dependency on China still remains substantially high at ~50% of total imports followed by USA at ~10%. Together, the top five import destinations accounted for ~78% of overall imports.

1H 2021 Imports surged ~39% YoY
Source: Ministry of Commerce, India

China – Accounts for Half of Imports, still high reliance
Source: Ministry of Commerce, India

Over the past five-six years, generally the Indian chemical industry including the agrochemical manufacturers have gained from multiple disruptions in China with the latest being Covid related supply chain issues. Due to these disruptions, MNCs have been scouting for China+1 sourcing strategy which has benefitted and expected to further benefit the Indian counterparts.

Indian agrochem production increasing with increasing domestic/exports demand

Domestic agrochem production has kept pace with rising domestic as well as exports demand. From a level of 143,000MT in FY11, agrochem production surged to 217,000MT in FY19 while fell to 192,000MT in FY20. Agrochem production declined YoY in FY20 due to delay in start of monsoon, RM cost volatility, low pest pressure, and towards the end of the financial year, partially impacted due to Covid issues.

Rising domestic agrochem production
Source: Ministry of Chemicals and Fertilisers, India

Indian agrochem capex on an upswing

Analysing capex trends of 10 large and mid-sized listed Indian agrochemical companies over the past 5 years (2017-21), it can be ascertained that the capex intensity has amplified significantly. The total investments made by these companies have been ~₹ 66bn. Based on the apex announcement by a number of these companies, the overall capex intensity is expected to continue in future too. Due to conglomerate/ diversified nature, size, and operations of UPL, we have excluded it from our calculations. UPL alone, post Arysta acquisition has invested over ~₹ 46bn during FY20-21 and is expected to continue its investment momentum with ~₹ 23bn investments planned for FY22.

Based on the analysis of the agrochemical exports and capex trends, it can be observed that the ongoing capex trend by domestic players is directed towards not only for partial backward integration (to alleviate supply concerns) but also for capitalising on the exports opportunity. Traditional argument of higher pesticide penetration in domestic market (India) persists yet incrementally, Indian agrochemical players should be looked upon from the exports opportunity perspective.