Agrichem majors face earnings cuts as weak demand, higher costs weigh

Brokerages expect weak Q2FY27 earnings for agrichem firms as deficient rainfall, subdued demand and elevated input costs squeeze margins, prompting earnings downgrades

Agricultural chemical (agrochem) companies are expected to report a weak second quarter (July-September/Q2) performance for 2026-27 (FY27), as erratic and deficient rainfall has hit demand. This, coupled with higher raw material prices and negative operating leverage, has crimped profitability. Brokerages believe earnings estimates for Q2 as well as FY27 are likely to be revised downwards to factor in the slowdown during the quarter and the near-term outlook. Given the multiple headwinds, the stock prices of top listed players, which are down 18-40 per cent over the past year, are unlikely to find support in the near term.

 

Revenue growth for listed majors in Q2 is expected to decline by up to 12 per cent year-on-year (Y-o-Y) due to the erratic monsoon and its subsequent impact on offtake and consumption of agricultural chemicals.

 

India’s monsoon ended 12.2 per cent below normal, the weakest since 2015, while El Niño is set to peak in November. While the kharif area is nearly flat Y-o-Y, dry spells in Maharashtra and Karnataka have put yields at risk.

 

Nuvama Research expects the Q2FY27 show for its agrochem universe to remain weak, with Coromandel International expected to report a 56 per cent fall in earnings before interest, tax, depreciation, and amortisation (Ebitda). The metric for PI Industries, Rallis India, and Sumitomo Chemical India is expected to decline by 36.7 per cent, 26.5 per cent, and 17.4 per cent, respectively. 

 

Elara Securities expects its agrochem/fertiliser coverage universe to report a 7 per cent decline in revenues, while Ebitda and net profit are expected to drop by 13 per cent and 31 per cent, respectively. Analyst Prashant Biyani of the brokerage believes that an erratic monsoon left West and South India in a rain-deficit situation through most of August and September, hurting both fertiliser offtake and agrochem consumption.

 

While agrochem consumption is weak due to lower pest and fungal infestation, the situation is not as dismal as in the case of fertilisers. This is due to limited placement in the first quarter (April-June/Q1), rains in the last 10 days of Q2 aiding consumption, and a lower base last year, the brokerage said.

 

Dealers remain cautious about building inventory, as prices have trended downward since June after an initial spike in March-May due to the West Asia war. High-cost inventory may exert pressure on agrochem players in the near term. Brokerages expect the sector to face profitability pressures going ahead, given weak demand and higher input costs.

 

Industry costs, according to Antique Stock Broking, rose during March-May, driven by higher technical (concentrated active chemical) prices, rupee depreciation, freight, packaging, and solvent prices.

 

While some input costs have corrected to pre-war levels since June, analysts Manish Mahawar and Riju Dalui of the brokerage expect elevated freight and crude prices to keep overall input costs high.

 

At the same time, weak demand and elevated channel inventory have limited agrochem companies’ ability to raise prices, which is likely to weigh on margins in the near term. Considering the challenging first half (H1) of FY27, the brokerage is trimming its earnings estimates and target prices for the coverage universe. Its key picks in the space are Sumitomo and Dhanuka Agritech.

 

On the outlook, Elara Securities expects fertiliser raw material prices to peak and cool off gradually. On the demand side, recovery is expected from calendar year (CY) 2027 onwards as El Niño ends in February.

 

Agri-input stocks should bottom out between October and December and rebound in H1CY27, followed by an earnings recovery from Q1 of 2027-28 onwards. Within the fertiliser space, it prefers Paradeep Phosphates and Coromandel, while within agrochemicals, it prefers Dhanuka and Bayer CropScience.