It may be Time to Har­vest the Agri Theme

The Economic Times - - Smart -

timesin­ter­ ETMar­ IMD fore­cast made ear­lier this week lifted sen­ti­ments on Dalal Street and stocks and sec­tors as­so­ci­ated with mon­soon. One such sec­tor which could ben­e­fit dras­ti­cally from nor­mal mon­soon, as fore­cast, is the agri­cul­tural sec­tor, say ex­perts.

The stocks of all ma­jor agri-in­put play­ers have re-gained pre­mium val­u­a­tions in re­cent months, led by im­proved vis­i­bil­ity over their topline and earn­ings growth. “There are two spa­ces which are look­ing very at­trac­tive at cur­rent val­u­a­tions. The first is, of course, the agri space and the ru­ral econ­omy on mon s o o n f o r e c a s t , ” Ni t a s h a Shankar, HoR, Yes Se­cu­ri­ties said in an in­ter­view to ET NOW. ETMar­ col­lated views on seven dif­fer­ent agri­cul­tural stocks which could ben­e­fit most from mon­soon rains: Ko­tak In­sti­tu­tional Eq­ui­ties ex­pects Dhanuka to re­port the strong­est growth in its topline among peers, at 24% year-on-year (YoY) in FY17. It has the sec­ond-largest dis­tri­bu­tion reach in the agro-chem­i­cal in­dus­try, with one of the widest prod­uct of­fer­ings of over 80 SKUs. Ral­lis In­dia has the largest dis­tri­bu­tion reach among peers, with strong con­nect with farm­ers and wide prod­uct of­fer­ings, which should en­able it to grow its rev­enues by 16% YoY in FY17. “The com­pany has suf­fered in the past due to slower mo­men­tum in new prod­uct launches. How­ever, it has launched seven prod­ucts in the mar­ket in the past 18 months,,” Ko­tak In­sti­tu­tional Eq­ui­ties said. Ko­tak In­sti­tu­tional Eq­ui­ties sees PI’s do­mes­tic busi­ness rev­enues grow­ing by 15% YoY in FY17 led by con­tin­ued growth mo­men­tum of its star her­bi­cide Nom­i­nee Gold.

While ‘Nom­i­nee Gold’ is likely to see ris­ing com­pe­ti­tion from generic prod­ucts as its ex­clu­siv­ity has ex­pired, it will hap­pen grad­u­ally over a pe­riod of 3-5 years as com­pe­ti­tion will have to match the dis­tri­bu­tion reach and brand pres­ence of Nom­i­nee Gold, said the bro­ker­age firm.


The bro­ker­age firm ex­pects UPL to post rev­enue growth of 12% YoY in its In­dia busi­ness in FY17, as it ex­pects de­mand for generic prod­ucts to be low, given the high base and a likely shift to­wards pre­mium prod­ucts, where the com­pany lacks size­able pres­ence. Ko­tak In­sti­tu­tional Eq­ui­ties ex­pects Kaveri Seed’s vol­umes to re­cover strongly in FY17 as it one, ben­e­fits from the re­cov­ery in in­dus­try de­mand, which suf­fered in FY16 on ac­count of lower acreage and down trad­ing, and sec­ond, re­cov­ery of lost mar­ket share in its home mar­ket.

“We ex­pect its cot­ton­seed vol­umes to grow by a strong 23% YoY in FY17, which should drive a rev­enue growth of 15% for the com­pany, de­spite like- ly lower re­al­i­sa­tion for cot­ton­seeds af­ter the govern­ment’s de­ci­sion to cut price of cot­ton­seeds to ₹ 800 per packet, from ₹ 930 ear­lier,” it said. ICICI Se­cu­ri­ties val­ues the com­pany’s core busi­ness at 11x FY17E P/E con­sol­i­dated EPS and in­vest­ments at 50% of book value or mar­ket value.

Soda ash prices have been largely stable and the risk of sharp de­te­ri­o­ra­tion re­mains limited. Im­prove­ment in Euro­pean oper­a­tions is a key to aid prof­itabil­ity, said the bro­ker­age fir m. The strong build-up in the consumer busi­ness would lead to even­tual rer­at­ing of the com­pany. ICICI Se­cu­ri­ties has a tar­get price of ₹ 82 based on 10x P/E on FY17E con­sol­i­dated EPS. High floor price no­ti­fied un­der the new urea pol­icy, which will en­sure a gross con­tri­bu­tion of $155/te will act as a key trig­ger for the com­pany as it will make the plant debt-free in six years. The com­pany can ob­tain cheap LI­BOR-based debt ($750 mil­lion) with­out as­sum­ing any cur­rency volatil­ity risks. Also, $900 mil­lion capex plan on a new urea man­u­fac­tur­ing fa­cil­ity adds to op­ti­mism.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.