PI Industries stands strong amid dry spell for agrochemical players

Even as firms in the domestic agricultural chemicals segment are expected to report muted single-digit growth for the June quarter, export-focused players such as PI Industries could outperform with double-digit year-on-year (YoY) revenue growth. 

The better show in the quarter is largely because of contribution from the customer synthesis and manufacturing (CSM) segment, which accounts for two-thirds of its revenues. 

The uptick in the global agricultural cycle will sustain the growth momentum in the CSM segment, helping PI post growth of 20-30 per cent YoY in the segment. 

Analysts at Antique Stock Broking say export-focused players such as PI, UPL, and Sharda Cropchem are likely to report better growth as compared to the pure domestic-focused players such as Dhanuka Agritech, Bayer Cropscience and Rallis India. 

In addition to the pick-up in the global agrochemical cycle, analysts expect PI Industries to do well, given a strong product pipeline, client relationship, large order book and expanded capacities.

The strong demand growth from overseas markets, however, is expected to be marginally offset by the weak domestic trend. 

The sub-par performance expected in the quarter is attributed to a delayed start to the south-west monsoon, leading to delay in sowing by 10-15 days, according to Antique Research. 

What could aggravate the situation is the adverse climate in Maharashtra and some southern states, lower crop area, and prices.

However, analysts expect the domestic sector to revive, on the back of a hike in minimum support prices and a slew of measures introduced by the government to boost rural income. 

Analysts at Edelweiss Securities say the schemes launched by the Centre and state governments, particularly the direct income support, are likely to drive up consumption of agri-inputs.

While the global demand uptick is good for the company, a near-term upside for the stock — which has gained over 36 per cent since the start of the year — is limited. 

Given the run-up, the valuation at 29 per cent, which is almost twice the peer averages, could correct slightly.