Mr. Himanshu Binani-Research Analyst at Prabhudas Lilladher
We expect agrochemical companies under our coverage to report revenue/EBITDA/PAT growth 18%/19%/16% YoY respectively primarily driven by healthy performance from export oriented players like UPL, Sharda Cropchem, PI Industries and Sumitomo Chemical. Better growth from exporters is driven by a) better weather conditions globally; b) robust agri-input demand scenario; c) remunerative crop prices globally and d) favorable currency impact. While on the domestic front, we expect companies to post subdued growth (mid to high single digit growth YoY) led by a) seasonally lean quarter for the domestic players; b) erratic weather conditions particularly in the Southern India; c) 3rd wave of COVID-19, limiting the movement of goods and people.
Our interaction with agrochemical dealers and industry players indicate that the domestic industry is likely to witness 7-10% YoY growth during 4QFY22 primarily driven by higher prices than volumes. Despite price led growth during the quarter the pressure on the margins is likely to persist as the industry has not been able to fully pass on the inflated cost amid a rising cost scenario. We rate UPL, Sumitomo Chemical and Rallis India as our top pick.
Remunerative crop prices bode well for the upcoming kharif season
Geo-political tensions between Russia and Ukraine has in turn resulted into disruption in global commodities value chain leading to sharp run-up in soft commodities as well. We note that, Ukraine is amongst the largest global exporters of wheat, Sunflower, barley, rapeseed and maize with a global exports market share of 10%/47%/17%/20%/14% respectively. While, Russia also has strong presence with global exports of 25%/18%/14% respectively in Sunflower, wheat and Barley. The domestic crop prices are witnessing catch-up rally with the global prices which in turn bode well for the overall farm economics ahead of the kharif season. While several weather forecasting agencies expects normal monsoon this year (96-104% of LPA) would boost rural sentiments.