FERTILISER, SEEDS COMPANIES OPTIMISTICON GOOD DEMAND
Normal monsoon and MSP hike to boost profits
Companies manufacturing farm input such as seeds, fertilisers and agrochemicals are likely to post double-digit growth in sales and net profit in 2018-19 if the monsoon is normal, as has been predicted, and if expected increases in minimum support prices (MSPs) for kharif crops materialise.
Equity brokerage firm Elara Securities has forecast that the revenue and net profit of agri chemicals companies such as Dhanuka Agritech, Insecticides India, PI Industries, Rallis India and UPL may jump 10-17 per cent and 14-18 per cent, respectively, in 2018-19.
Sales of agri raw materials are likely to remain positive on growing rural consumption and rising disposable farm expenditure, following increased farm output during the last kharif and rabi seasons.
Though prices of most agri products remained below MSP levels or slightly above the threshold, farmers are inclined to opt for conventional farming and not switch from one crop to another.
“According to Skymet Weather, the monsoon is likely to remain normal at 100 per cent (with an error margin of +/-5 per cent) of the longperiod average (LPA) of 887 mm from June to September. Also, expected hikes in MSP rates are likely to enhance hopes about farm income. Higher acreage and yield on the back of improved farmers’ sentiments, coupled with recovery in farm income, are likely to bolster growth in the agrochemicals business in 2018-19,” said Rahul Veera, an analyst with Elara Securities (India).
In January-March, however, Elara Securities has estimated domestic market-focused agrochemicals companies will post 8-10 per cent growth in sales and export-centric firms such as UPL and PI Industries 11 per cent and 18 per cent, respectively.
“Prices of agri commodities
remained depressed throughout last year. Hence farmers switching from one crop to another will not happen this year,” said Madan Sabnavis, chief economist, CARE Ratings.
Meanwhile, this being a preelection year, the government is set to lure farmers with an increase in MSP. But a mere increase may not benefit farmers owing to the government’s focus on procuring only a few commodities such as wheat, rice, and a limited quantity of pulses. Experts, however, say the government may compensate growers by paying them the difference between MSPs and spot prices in the case of other commodities including oilseeds and maize.
After a 7 per cent decline in 201617, sales of primary fertilisers witnessed just 2 per cent growth in 2017-18 owing to low systemic inventories maintained by fertiliser companies in view of the panIndian implementation of direct benefit transfer. Both the fertiliser and non-fertiliser sectors recorded 2 per cent growth in 2017-18.
“The situation is positive for fertiliser companies because they can keep prices intact for farmers and also be compensated for higher input costs. But, the government’s subsidy burden will rise. We believe non-urea players stand to gain because fertiliser prices at farmer level are expected to remain unchanged and the recent rupee appreciation could lead to better operating margins,” said Rohan Gupta, an analyst with Edelweiss Securities. Meanwhile, farmers have urged the government to provide the infrastructure for procuring and storing agri produce near production centres.