The profitability of agrochemicals companies that have operations in south India
is likely to stay better than those of industry peers in the current financial year, following a recovery in sales after a weak June quarter.
While all companies in the agrochemicals space faced destocking problems in the June quarter ahead of the introduction of the goods and services tax (GST) on July 1, a delay in the monsoon rains has aggravated the situation, resulting in subdued profit margins. Many stockists returned their goods to the manufacturer, resulting in a sharp decline in profits.
However, sales bounced back in the second fortnight of July. Good rain also boosted sentiment. Thus, the sowing of heat-tolerant crops such as those in horticulture and cotton resumed.
“The south India
kharif crop condition is good compared to last year. Cotton sowing in the south was delayed due to the late arrival of the rains. Overall, the south Indian agrochemicals market is expected to grow 15-20 per cent year-on-year. We continue to maintain our positive views on Chambal Fertilisers and Deepak Fertilisers.
In the agrochemicals space, we prefer PI Industries, Insecticides India and Dhanuka Agritech
because of their focus on the south,” said Sumant Kumar, an analyst with Emkay
Global Financial Services.
The deficit in rain in south India
was 36 per cent in August while there were heavy showers in the west and the north. Skymet expects the monsoon to end with a deficiency of 5 per cent, which means rain between June and September will be 95 per cent of the long period average (LPA). During the rest of the season, Karnataka, Tamil Nadu, and Andhra Pradesh (which are highly rain-deficient) are expected to receive good rain.
“Our unique product mix has offered customers an opportunity to procure agri raw materials from us. We, therefore, expect our sales to jump 10 per cent in the second quarter of the current financial year against the average sales increase of the industry of 5 per cent,” said M K Dhanuka, managing director, Dhanuka Agritech.
Companies such as Bayer Cropscience, Dhanuka Agritech, and PI Industries posted a decline in net profits in the June quarter on destocking from its customers.
A number of agro chemicals
companies offered incentives to their customers to retain their inventory, which they had piled up in April and May following the India Meteorological Department’s (IMD’s) forecast of a normal monsoon in the beginning of the current season.
Global forecasts net profits of Insecticides India and Dhanuka Agritech
to rise by over 42 per cent and 15.5 per cent, respectively, during 2017-18. The broking firm also predicts strong profits growth by Bayer CropScience and Rallis India at 46 per cent and 52.7 per cent, respectively, for the current financial year.
The increase in the acreage of cotton this year has boosted agri input sales. The data compiled by the Ministry of Agriculture
show the cotton-sowing area was 12.15 million hectares (1 hectare = 107,000 square feet, approximately) in 2017-18 (up to September 14), an increase of 19 per cent from 10.22 million hectares sown around the same time last year. The kharif crop-sowing area, however, reported a decline of 0.73 per cent to 104.94 million hectares up to September 15, compared to 105.72 million hectares at the same time last year.