Agro Chemicals Q4 Results Preview — Challenges To Persist For Domestic Players: Prabhudas Lilladher

Prabhudas Lilladher Report

We expect companies in our coverage universe to report revenue/Ebitda/ profit after tax growth of 21%/15%/8% YoY (agrochemicals 11%/9%/0.1% YoY), (fertilizers 51%/53%/48% YoY).

Growth of agrochemical companies is likely to be subdued (expected to grow at mid-single to low double digit YoY; our estimate: 11% YoY revenue growth) primarily led by-

1. sluggish demand environment in a seasonally lean quarter;

2. higher carry-over inventory from kharif season, leaving limited room for further inventory push;

3. higher sales return (particularly insecticides grades) exerting pressure on margins and

4. provisions of high cost inventory, amid falling raw material cost scenario.

On the other hand, growth in fertilizer companies is likely to be higher led by higher subsidy payout from Government and reduced raw material prices.

Citing above reasons, we remain cautious on the sector. Though major macro-economic variables (soil moisture, water reservoir levels, domestic crop prices etc.) continue to remain on positive trend, yet higher base of last year (H2 FY22, ~25% YoY growth) may pose challenges for domestic agri input players.

Further, rising concerns on El-nino in the upcoming season is likely to dampen the earnings prospects going forward.

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