Ten stocks that are likely to be most vulnerable if the monsoon fails

Fears about a below-normal monsoon have spooked policy-makers and farmers with large parts of the country having received deficient rain in the first three weeks of the four-month season. A hit to agriculture this year will have a direct impact on India’s $2-trillion economy and companies that depend directly or indirectly on the farm sector and rural consumption.

ET Intelligence Group picks some of the companies that are likely to be most vulnerable if the monsoon fails.

Jain Irrigation: Farmers typically install micro-irrigation systems way ahead of the monsoon, which means the June-September period is a slack season for Jain Irrigation. As a result, its financials in the quarter to June may not reflect any impact of a weak monsoon. But this will emerge in the September and December quarter numbers.

Rallis India: A weak monsoon and uncertainty over farm output leads to a drop in agrochemical consumption. ​The July-September quarter is typically the year’s best for the company, a period in which it reports over 35% of annual sales. A weak monsoon would undermine this.


KAVERI SEEDS: A leader in the Indian hybrid seeds industry, more than 70% of its revenue comes in the quarter ending June. A weak monsoon may not only impact sales for the quarter but also production of its commercial seeds.

M&M FINANCIAL SERVICES: Cars and tractor loans constitute 43% of the total loan book. A poor monsoon will result in lower earnings for farmers, thereby delaying the purchase of tractors and personal vehicles. As a result, the company’s loan growth may slow this fiscal.

HINDUSTAN UNILEVER: Adeficient or excess monsoon indirectly impacts consumer goods companies since rural incomes depend on a normal or good monsoon. HUL, the market leader in the consumer goods sector, earns 40-45% of its revenue from rural India. Poor rain will impact rural incomes, putting the brakes on volume growth.

ESCORTS: The leading farm equipment maker may not see any impact of a weak monsoon this year, since its core markets of northern and central India are likely to be hit less than the southern market. However, a sustained weak monsoon and a resultant drop in output will impact buying decisions of farmers on farm equipment in the next sowing season.

KIRLOSKAR BROTHERS: Nearly 5 lakh pumpsets are sold annually in the Indian market, of which 20-25% is used for farming. For Kirloskar Brothers, sales to the agriculture market contribute nearly 20% of total product business. The company maintains there is no direct correlation between the sales of agriculture pumpsets and rainfall distribution. This is supported by the fact that in the past five years, pumpset volumes have grown by a compounded annual growth rate of 15-18% despite two drought years during this period.

RASHTRIYA CHEMICALS & FERTILISERS: The leading fertiliser maker may witness a higher inventory build-up due to a weak monsoon. Profitability may not be hit much due to the subsidy mechanism but the interest burden may rise due to higher working capital. Interest costs eroded 21% of the company’s FY14 operating profit.

HERO MOTOCORP: Rural sales contribute nearly 45-48% of sales of India’s largest motorcycle manufacturer. The company has been betting significantly on rural demand to achieve a volume growth of 8-10% for the current financial year on the back of rising rural income, increasing farm output and government social spending. This may be reversed if weak monsoons impact rural demand.

BALRAMPUR CHINI: Over the past few quarters, sugar-manufacturing companies have been incurring losses due to the continued increase in cane prices. Sugar prices meanwhile have remained flat because of surplus production. At current sugar prices, companies are reporting losses. A poor monsoon will reduce production next fiscal, thereby pushing up the price of cane.

(With inputs from Ashutosh Shyam, Suraj Sowkar and Kiran Somvanshi)