Why does Elara Capital prefer fertilisers over agrochemicals? Top bets here

Brokerage firm Elara Capital expects agrochemical companies to continue their muted performance as the majority of the demand-driving factors including pest infestation, crop prices, and weather conditions, remain under stress. The domestic agrochemical industry may witness lower volumes in the December 2025 quarter (Q3FY26), as higher sales returns from the kharif season in October are expected to offset placement-led growth from the rabi season.

 

Within fertilisers, Urea and DAP volumes remain largely stable, posting growth of 1 per cent and a decline of 2 per cent, respectively, while NPK volumes for the industry have fallen by 15 per cent.

 

Adverse realisations, weather, and crop output

According to analysts at Elara, in India, unseasonal and extended rainfall in October significantly damaged crop protection consumption as the last window for Kharif season application was also lost. Crop damages were also more serious than normal. "Lower crop, horticulture and grain prices have reduced farmers’ purchasing power, leading to lower sales of speciality crop protection chemicals as well as lower seed sales," the brokerage said.

 

Additionally, falling maize prices have led to crop rotation to jowar in some areas. Chilli, horticulture crops, especially grapes, have also witnessed a sharp decline in crop protection consumption. 

 

Region-wise, South and West India recorded a significant drop in agrochemical demand, while East and North India have remained stable. Channel inventory is also higher for some multinationals. 

Rising raw material costs to hurt fertiliser profits 

Higher sulphur and ammonia prices are creating challenges for fertiliser companies. Though marginal price hikes have been implemented, the Q3 nutrient-based subsidies remain insufficient. Despite these price increases, analysts expect higher raw material costs to continue weighing on the profitability of the fertiliser business for complex fertiliser manufacturers.

Favouring fertilisers over agrochemicals

Elara Capital continues to prefer fertiliser companies over their agrochemical counterparts due to several growth opportunities offered by the sector without any meaningful risk.

 

Among fertilisers, Elara Capital prefers Coromandel International and Paradeep Phosphates with a 'Buy' rating, and Chambal Fertilisers with an 'Accumulate' rating. 

 

From the agrochemical space, the brokerage said, it likes UPL and Sumitomo Chemical India. It has a 'Buy' rating on the stock.