Stable monsoon and strong surge in sales may help this sector spray profits on investor’s portfolio

Date:06-12-2020

With the onset of the Kharif sowing season, the fertiliser industry has been witnessing a sharp surge in sales with industry volumes spiking to as high as 25% in the month of May. Sales have been aided by the large demand for urea as well as nitrogen, phosphorus, and potassium (NPK), shows data compiled by brokerage and research firm Prabhudas Lilladher. 

Analysts are upbeat on agricultural and allied activities owing to the low impact that the sector has faced of the coronavirus pandemic and the healthy monsoon predicted ahead. The recent locust attack that a few Indian states witnessed is also likely to pull farmers closer to fertilisers in a bid to save their harvest.

Fertiliser stock listed on the bourses could be eyed by investors to benefit from the potential that the sector is staring at and the overall positive hopes pinned in the agriculture sector. “Agriculture is actually very positive,” Vinod Nair, Head of Research, Geojit Financial Services told Financial Express Online. “We have Coromandel International in our coverage and the results were good there. I think this turned positive because the outlook for monsoon is stable and above normal and the water level is also very good, highest in recent years,” he added. What could also help agriculture and related stocks in the near future is the central government’s aim to boost farmers’ income and help them double the same in the next few years.

Leading fertiliser companies, analysed by Prabudas Lilladher saw a 22%-67% jump in sales in May. Coromandel International and Chambal Fertilisers were the biggest gainers both seeing 67% and 49% jump in sales on-year basis. Urea, compost, and NKP were the fertiliser segments seeing the largest demand. The brokerage firm has a BUY rating on Bayer Cropscience, Dhanuka Agritech, Godrej Agrovet, Insecticides India, and UPL. The strong outlook for the industry is evident from the 45% jump in profits that Dhanuka Agritech registered in the March quarter. Dhanuka Agritech’s management in a post-result conference call also termed the locust attack as a positive for the company that has  7-8 product offerings to deal with such attacks.

After falling in the market bloodbath of March, fertiliser stocks have seen a massive surge to date. Dhanuka Agritech has seen phenomenal growth with the stock jumping 116% since the last week of March, shares of Coromandel International gained 37%, while those of Insecticides India are up 85% in the same time-frame. Even Sumitomo Chemical India and Rallis India have seen a 74% and 60% increase in share price since March lows. The locust attacks seen in the states of Rajasthan, Maharashtra, Madhya Pradesh, Uttar Pradesh, and Gujarat were at a time when Rabi harvest was over, however, the threat to horticulture are at risk in the particular states. 

Vegetables constitute 59% of the horticulture production in India while 31% comes from fruits, said Motilal Oswal in a research report. “Pesticides mainly used to control locusts are Chlorphyrifos (Sumitomo Chemicals, Gharda, UPL, Coromandel, Insecticides India, and Bharat Rasayan), Melathion (Rallis, Coromandel, and Sumitomo), and Deltamethrin (Bayer Crop, Insecticides India, and Meghmani),” the report said. Over the years pesticide consumption has jumped when such pest attacks have targeted Indian farmers. 

The agriculture sector has a positive outlook with even the Reserve bank of India Governor, Shaktikanta Das calling it the beacon of hope in the middle of the coronavirus crisis. The sector also has fared well despite the coronavirus pandemic. “In fact, COVID has pushed the theme to stable sectors where agriculture is very positive,” Vinod Nair said.