Locust pest attack to boost agrochemicals demand; positive for UPL, Sumitomo and Insecticides India

 

The locust pests’ attack on the Indian agriculture sector amid the lockdown situation is likely to provide stimulus to the usage of agrochemicals that may benefit most agrochemical companies in FY21, said a report.

 

ICICI Securities believes that there is no immediate impact as there is a negligible standing crop in the Mar-June period in India but such disruptive events create awareness among farmers and provide stimulus to the usage of agrochemicals. “If the pest attack remains strong even after Jun’20, we believe it may impact CY20 Kharif Agri season,” the brokerage said in a report.

 

The shortage of agrochemicals in trade due to lockdown along with logistics and transportation issues may not allow faster access of agrochemicals to the farmers. This may be positive for most agrochemical companies in FY21 due to additional demand. The companies with strong Balance Sheets and moats like established brands and distribution will be likely winners, the report said.

 

The brokerage believes that the inventory level of agrochemicals in trade is depleted while logistics and transportation are also impacted. Hence, farmers may find it difficult to source agrochemicals at short notice.

 

Though many insecticides or combinations can be used to control locusts, Chlorpyrifos is one of the key insecticides. While most agrochemical companies generate some revenues from Chlorpyrifos, Gharda chemicals (Unlisted) is one of the major players in India, it noted.

 

The consumption of agrochemicals may increase in the near term as farmers get worried about the crops. ICICI Securities expects such disruptive events to provide stimulus to the 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 a winner. The companies with strong moats such as brands and distribution network will continue to benefit,” the report said.

 

MNCs like Sumitomo and global players like UPL will be able to roll out new products in India faster compared to the local companies, it added.

 

The brokerage has Buy rating for UPL, Sumitomo, and Insecticides India while for Godrej Agrovet it has a Hold rating.