It may be Time to Harvest the Agri Theme
timesinternet.in ETMarkets.com: 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. ETMarkets.com 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.