Pest attacks to deliver sales boost to agri input companies in FY19

However, there are some headwinds in terms of lower rabi acreage which has stoked fears of a marginal drop in sales during the remianing part of the current financial year

After two tepid years, agri input companies are set to post robust growth in their top lines and bottomlines during the current financial year, following improvement in sales of insectides and other products due to intermittent pest attacks in agricultural crops.

Most agri-centric companies posted a rapid growth in turnover and profit for the October–December quarter on improvement in sales. Revenue and net profit of Insecticides India jumped by 22.6 per cent and 75 per cent to Rs 216 crore and Rs 17 crore respectively for the October–December quarter. The total revenue of UPL Ltd rose to Rs 2,216 crore for December 2018 quarter from Rs 1,942 crore a year ago.

Cotton crop faced pink bollworm attacks in rainfall-deficient Maharashtra, with over half the budding bulbs in the standing crops destroyed in drought-prone districts. White grub infestations damaged sugarcane crop in some parts of Maharashtra. Uneven distribution of rainfall this monsoon impacted crops in parts of Gujarat, Madhya Pradesh and Rajasthan.

“In Q3FY19, companies are expected to report a mixed set of results. Domestic market-focused companies are likely to report negative to flat revenue performance. Companies having higher export presence will be able to partially offset the decline in the domestic market. On an aggregate basis, we estimate 12–16 per cent y-o-y growth in revenues/EBITDA during Q3FY19. Based on our agri-dealer channel-checks across India, overall, the domestic pesticides market is growing in mid-single digits, primarily driven by new and combination molecules. Dealers noted that companies introducing new molecules or patented products are grabbing market share, and that the shift is largely toward combination products,” said Amar Mourya, an analyst with Emkay Global Financial Services Ltd.

 

Mourya, however, says investors should prefer companies with higher share of export revenues, coupled with a high degree of backward integration. After the change in global agro-market dynamics -— the uptick in export demand, reduction in global inventories, and supply-side issues in key raw materials or agrochemical intermediates —- a few business models have become ineffective in creating shareholder value.

Interestingly, the government of India has set a target to double farm income by 2022 of which agri input companies are set to be major gainers.

“We envisage agri input players to remain key beneficiaries given the government’s target to double farm incomes and potential sharpened rural focus post the recently held state assembly election. Also, with clear signs of pick up in the global agrochemical cycle, we believe this segment is set to post robust growth after nearly two tepid years,” said Rohan Gupta, an analyst with Edelweiss Securities Ltd.

Rajesh Agarwal, Managing Director of Insecticides India, said, “This sector was faced with anaemic sowing activity in the rabi crop across key states due to deficit rainfall in the post-monsoon period during October to December. Despite these challenges, Insecticides India has been able to deliver an impressive growth across segments and products due to better product mix.”

Agri input companies, however, face some headwinds in terms of lower rabi acreage which has stoked fears of a marginal decline in sales during the rest of period of the current financial year.

Also, the situation in China is gradually improvement in pricing and supply, barring some key raw material. Further, the prices of some widely consumed molecules have dipped as the availability has improved.