Agrochemical shares soar on monsoon forecast

Monsanto India, Jubilant Industries, Atul, Sharda Cropchem, Rallis India gained between 1% - 17% on Thursday

Good monsoon prospects pushed up the stocks of companies in the agrochemicals sector on Thursday. A day earlier, private weather forecaster Skymet had predicted the rains would hit the Kerala coast at least a few days ahead of schedule.

Monsanto India, Jubilant Industries, Atul, Sharda Cropchem, Rallis India, Bayer CropScience, UPL, PI Industries, Dhanuka Agritech and Insecticides (India) are some in the segment whose shares closed between one and 17 per cent higher on Thursday at the BSE.

“If input costs for a lot of these firms get rationalised, this will further help improve the margins. That apart, there is an expectation of a pick-up in volumes as well, in the backdrop of a good monsoon. All this will help them post a better top-line growth, with stable margins,” says Mayuresh Joshi, fund manager at Angel Broking.

Monsanto India, to announce its March quarter financial results on May 30, soared 17 per cent to Rs 2,405, extending its previous day’s rally on the BSE, on heavy volumes. In two trading sessions, the stock has zoomed 32 per cent, from Rs 1,818. According to reports, Bayer AG is exploring a potential bid for US competitor Monsanto, parent of the listed entity in India. Such a deal would create the world’s largest supplier of seeds and farm chemicals.

Atul, a diversified chemicals company from the Lalbhai group, hit a record high of Rs 2,040 on the BSE in intra-day trade. The stock has gained 11 per cent since April 29, after announcing its March quarter results which showed 40 per cent growth in net profit over a year before, at Rs 63 crore.

Caution
Analysts suggest investors remain cautious on these stocks, as the rally has mostly been fuelled by expectation of a good monsoon. Also, the improvement in financials comes from a low base, after two years of sub-par rains.

“Even if the monsoons are good this year, it does not imply demand will pick up in the same proportion. Also, for a lot of agrochemical and seed-related companies, a lot of pre-buying of the product (seeds, chemicals and fertilisers) by farmers also happens in the months of April and May. It is after the monsoon that these products come into use, when the harvest is almost ripe and farmers are preparing to cut the crop. One must also remember that any improvement in financials should be seen from a low base,” Joshi adds.

While most analysts remain hopeful that the monsoon forecast will not be revised downward, any disappointment there, they warn, could see gains wiped out in these stocks. However, companies with robust fundamentals and a diversified portfolio should continue to do well in the long run.

With the next monsoon forecast by the India Metrological Department scheduled in a few days, the next few days could see these stocks remain in the limelight.

“We remain bullish on GSFC, Rallis India, UPL, Coromandel Fertilisers and Tata Chemicals. These stocks could see a 20 per cent upside over the next one year. Companies like Kaveri Seeds should also do well. Dhanuka Agritech and PI Industries are other stocks that could gain ground. Having said that, a lot will depend on their financial performance as well, and not just the rains,” says A K Prabhakar, head of research, IDBI Capital.