Agrochem stocks set for rally, may give up to 50% in a year
FICCI estimates the size of the Indian agrochemical sector to double to $8.1b by 2025.
“The agrochemical Industry is showing signs of recovery after three years, with acceleration in sales growth and profits led by an increase in the global agro chemical industry, rising exports and (more) pest infestation due to global warming,” said Prashant Biyani, analyst, Prabhudas Lilladher. “Better timing and spatial distribution of rainfall, higher pest incidence via-avis last year, and steps by the government to improve farm income are expected to increase the application of agrochemicals.”
These firms were under pressure for the last few years mainly because of spatial distribution of rainfall, lower than expected pest incidence, supply constraints, and a persistent increase in raw material prices.
Some of the stocks have already been bought by fund managers and high networth investors in the last few weeks on expectations of a turnaround in the sector. Shares of Insecticides India rallied 49 per cent in the last three months, while UPL has surged 24 per cent during this period. PI Industries and EID Parry gained 15 per cent each in three months.
Indian companies are currently expanding capacities in a calibrated manner and enquiries from MNCs are fast turning into actual transactions, aiding topline growth and higher utilization for technical manufacturers, said analysts.
“As (the effects of) industry consolidation, higher channel inventory of finished goods and the spill-over effects of two consecutive weak monsoons are behind us, we believe that a recovery in the agro-chemical market is in the offing,” said Archit Joshi, analyst, HDFC Securities. “With a strong product pipeline and an expected recovery in CRAMS/CSM (new chemistries and verticals), we believe that the Indian crop protection market is on a recovery mode.”
FICCI estimates the size of the Indian agrochemical industry to double to $8.1 billion by 2025.
“The availability of cheap labour and low processing costs offer opportunities for both domestic companies and MNCs to set up manufacturing hubs in India for their export markets,” said Prabhudas Lilladher’s Biyani.
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