Agro Chemicals Q1 Results Preview - Lackluster Performance Likely: Prabhudas Lilladher

Prabhudas Lilladher Report

We expect companies in our coverage universe to report revenue / Ebitda /profit after tax de-growth of 1%/10%/19% YoY (agrochemicals 4%/-11%/-26% YoY; fertilizers -8%/-5%/-5% YoY). Performance of agrochemical companies is likely to be muted (our estimate: -1% YoY revenue de-growth) primarily due to-

1. sluggish demand environment in both domestic and global markets;

2. higher carry-over inventory from last year (FY23) leaving limited room for further inventory push; and

3. provisions of high cost inventory amid falling raw material cost scenario.

Further, revenue decline in fertiliser companies is in-line with decrease in subsidy rates from the Government we expect overall volume growth to be in mid-single digits (largely led by higher marketing volumes) and profitability (Ebitdam/million tonne) to be lower YoY due to inferior product mix and further provisioning of high cost inventories amid falling raw material cost scenario.

We continue to maintain our cautious stance on the sector largely led by-

1. delayed monsoons with looming fears of El-Nino in H2 of the monsoon season (mid-august to September);

2. pressure on price realisations amid falling raw material cost scenario (particularly generic molecules); and

3. higher base of last year (for agrochemicals Q1 FY23/H1 FY23 revenue growth of +25%/+22% YoY respectively).

While, on the exports side lower demand in key geographies coupled with higher inventory pile-up is likely to keep near term performance under check. We continue to like PI Industries Ltd. in agrochemical space and Coromandel International Ltd. in fertiliser space.

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