Buoyed By Q1, Agricultural Input Firms Turn Bullish On FY21

Companies making agricultural inputs expect growth seen in the quarter-ended June to sustain and get better. Here’s why.

A man sits next to a field in Kacharibari More, West Bengal. Photographer: Prashanth Vishwanathan/Bloomberg
A man sits next to a field in Kacharibari More, West Bengal. Photographer: Prashanth Vishwanathan/Bloomberg

Companies making agricultural inputs including fertilisers, herbicides and agro-chemicals expect growth seen in the quarter-ended June to sustain and get better, aided by strong rural demand, capacity expansion and product innovations.

Shares of Dhanuka Agritech Ltd., Rallis India Ltd. and Coromandel International Ltd. have jumped between 15% and 80% in the three months through June. That was driven by financial performance that overcame disruptions caused by the Covid-19 outbreak as agri industry was categorised among essential services.

Economic activity came to a standstill in India following the pandemic and lockdowns that were imposed to curb it. As a result, the Indian economy is staring at its first contraction in nearly four decades in the ongoing fiscal. However, rural India—where agriculture is the mainstay—is expected to emerge as a bright spot amid projections of a normal monsoon and bumper harvest.

“We maintain our full-year revenue growth guidance of 20%. And in terms of Ebitda margins also we maintain a minimum 100-basis-point improvement over the previous year,” MK Dhanuka, managing director of Dhanuka Agritech, told BloombergQuint. “In addition to five new products launched in FY20, the company plans to launch 10 new molecules over the next two years.”

Agriculture will continue to do better and there will be demand for our products, Coromandel International told investors at an earnings call for the first quarter. “Overall inventory for the company and the industry has come down which actually shows a good throughput,” the company said.

New Launches

Dhanuka Agritech launched two new herbicides in the first quarter—Dabooch and Dozomaxx—and plans to launch two fungicides in the near future.

Coromandel International said new launches in various segments gained momentum during the quarter and it would focus on introducing 3-4 new molecules every year.

Rallis India said it successfully completed the second phase of its expansion of the plant that makes its herbicide Metribuzin and is on track to commission a new formulation unit in Dahej, Gujarat, during the year.

The company is setting up a research and development facility in Bengaluru that would focus on developing products in the areas of crop protection, crop nutrition and seed research, Sanjiv Lal, the company’s managing director and chief executive officer, said in an investor call.

Future Optimism

The agriculture sector has been relatively immune to disruptions caused by the pandemic. The government, by declaring agriculture as essential service, ensured that such companies were able to operate their plants at a time when the nation was under a lockdown.

Coromandel International attributed other reasons for rise in demand for their products. “Better than normal rainfall in our key markets, good soil moisture conditions and proactive steps taken by the government in procuring the bumper rabi harvest, led to positive sentiments in the farming community, resulting in early demand for agricultural inputs,” Sameer Goel, the company’s managing director, said.

Timely and ample rainfall in key crop growing regions has boosted sowing as well demand for products of these companies. Sowing data of major kharif crops such as paddy, pulses, coarse cereals and oilseeds as of July 24 showed that a total of 799.95 lakh hectares have been covered this year—up by 18.5% over the year-ago period, according to Ministry of Agriculture.

Analysts, too, have given the thumbs-up to these companies as strong earnings growth coupled with favourable sector dynamics offer greater growth visibility in an uncertain economic environment.