Agri input stocks rise as monsoon progresses

Stocks of agri input companies comprising farm machinery, fertilisers, agro chemicals and seeds are in demand, with the first half of monsoon season being above normal in most parts of India.

After a sharp fall in March, shares of these companies have bounced back with the timely arrival of monsoon rains, which this year covered most parts of the country quite early, leading to demand of agri inputs for sowing. Good rabi crop also has had a multiplying effect, said analysts.

A check done by Financial Chronicle shows agri input companies' share price have gained between 10 per cent and 55 per cent since June 1, when the monsoon’s arrival was announced by the Indian Meteorological Department.

Some of the gainers since the June 1 - onset of the monsoon season included Mahindra & Mahindra (27.53 per cent), VST Tillers & Tractors (55.78 per cent), Rallis India (38.74 per cent), Bayer Crop Science (11.96 per cent), Kaveri Seeds (33.11 per cent), Coromandel International (23.89 per cent), UPL (9.28 per cent), Deepak Fertilisers (25.84 per cent), GNFC (19.01 per cent) and GSFC (38.01 per cent).

Gains in the stocks are in anticipation of a good first quarter earnings as demand has been robust, analysts said.

"We expect agri-input companies to deliver robust revenue growth on the back of timely and well-distributed monsoon across India. The industry will also benefit from comparably lower rains in Q2 in the previous year. The fertiliser industry has grown 23 per cent year-on-year in Q1, owing to the timely monsoon," said Varshit Shah, research analyst, Emkay Global Financial Services.

Supply chain issues did affect production at some of the agri input companies dependent on imports from China.

“Agro chemical industry faced supply chain issues in Q4FY20 for Q1 delivery. However, raw material imports from China picked up in March.

“As China supplies eased, the domestic supply chain was disrupted by the lockdown in India. Our analysis suggests that while import prices are marginally lower on a YoY basis, domestic prices are higher due to shutdowns even in June. Hence on an overall basis, we expect gross margins to remain flat-to-marginally positive for companies,” Shah said.

Tractor and other farm machinery sales of Mahindra & Mahindra, Escorts, Sonalika, John Deere, New Holland, VST Tillers & Tractors, Ace and Greaves have grown

70-80 per cent in North and East zones in June over March and about 2025 per cent year-on-year on pent up demand and good progress of monsoon rains,” said Ashiwn Patil, senior research analyst, LKP Securities.