Agro Chemicals Sector Check - Forecast Of Subpar Rains Likely To Dent Earnings: Prabhudas Lilladher

Prabhudas Lilladher Report

India Meteorological Department and Skymet, in their recently released monsoon forecast have predicted ‘Normal’ monsoons (96% of long period average) and ‘below normal’ rainfall (94% of LPA) for the forthcoming monsoon season.

IMD expects monsoon to be at 96% of LPA; with El-nino patterns likely to develop during second half of the season (mid-August to September). On the other hand, Skymet, expects monsoons to be at 94% of LPA with Northern and Central parts of the country risking deficit rainfall. The gloomy forecast of 96%/94% of LPA is a concern to the beleaguered agri input industry, which is already reeling under high channel inventory and high cost raw material inventory amid a falling raw material cost scenario.

We have factored in revenue growth of 9.6% YoY in FY24E for our agrochemical coverage universe versus 8.7% compound annual growth rate clocked over FY14-16 (FY15/FY16 witnessed deficit rainfall).

However, we believe that pressure this time would not be as severe as FY15/16 largely as-

1. channel inventory is higher particularly for insecticides grades only, overall inventory remains at comfortable levels;

2. domestic crop prices continue to be remunerative;

3. Government’s thrust on improving farm income;

4. expectations of special aid from govt to the farming community in case of crop damage or losses (due to adverse weather conditions etc.) given Lok Sabha elections next year.

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