Agrochemical's revenue to grow 15-17% this fiscal, driven by demand: Report

Agrochemical players are likely to witness 15-17 per cent revenue growth this fiscal, mainly driven by strong global and domestic demand, according to a report.

Revenue is expected to grow by 10-12 per cent in the next 2023-24 financial year as India continues to benefit from the China+1 strategy of global players and key molecules going off patent, Crisil Ratings said in a report said on Monday.

Higher operating leverage will help sustain operating margins at 15-16 per cent in the current fiscal and FY24, despite input prices remaining elevated, it added.

Capital spending will continue at similar levels as in the past, but elongation in the working capital cycle will result in higher borrowings, as per the report.

"Export revenue is seen rising 18-20 per cent this fiscal, with the US dollar appreciating 9 per cent so far and volume growing as global players continue to de-risk their China dependency.

"Next fiscal, exports will likely grow 12-14 per cent as players keep up capex with an eye on molecules worth USD 4 billion going off-patent over the next two years. As a result, exports will remain the major contributor to the agrochemical sector accounting for 53 per cent of the total revenue," Crisil Ratings director Poonam Upadhyay said.

Meanwhile, the domestic segment is expected to grow 12-14 per cent this fiscal, driven by a near-normal monsoon, higher realisations and improving farm sentiment, the Crisil report said.

If a normal monsoon continues and the government focuses on improving farm incomes, the domestic segment will grow 10-12 per cent next fiscal, it added.

Prices of crude and yellow phosphorus, the key raw materials, shot up 40-45 per cent and 18-22 per cent, respectively, in the latter half of the last fiscal.

Continued high prices, despite some moderation lately, will dent gross margins by 90-110 basis points.

However, higher operating leverage, derived from better cost absorption, will ensure the overall operating margin remains at 15-16 per cent this fiscal, only marginally lower compared with fiscal 2022.

Margins are expected to stabilise at similar levels next fiscal, the report said.

"Agrochemical players will remain largely 'stable'. Healthy cash generation will limit reliance on external debt even as capex intensity remains high at Rs 6,000-6,500 crore over each of the next 2 fiscals.

"However, an increase in the share of exports mainly to countries in the LATAM region, which require higher credit periods will increase their working capital borrowings. That said, well-maintained balance sheets along with higher cash accruals will help debt metrics sustain at comfortable levels," Crisil Ratings Associate Director Shounak Chakravarty said.