PremiumThe improving monsoon is expected to lead to an increase in the sales of agri inputs and bring cheer to manufacturers. It is thus not surprising that stock prices, which had remained subdued during the June quarter, also are rebounding
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NEW DELHI : The improving monsoon is expected to lead to an increase in the sales of agri inputs and bring cheer to manufacturers. It is thus not surprising that stock prices, which had remained subdued during the June quarter, also are rebounding. UPL Ltd, PI Industries, Coromandel International, and Sumitomo are up 10-19% since the June lows, with Sumitomo seeing the maximum gains.
“All India rainfall witnessed a deficit of 8% in June and is expected to pick up in July, which could result in a normal monsoon," said analysts at Sharekhan. A timely and normal monsoon would result in strong agriculture crop production in the Kharif season, which in turn could lead to an increase in volume for agri-input companies amid already strong export demand, said analysts. Lower acreage and deferment of actual sales (dealer to farmer) to 2QFY23 has not been good news for agri stocks and will have a bearing on Q1 performance. The input cost pressure because of rising chemical prices continued adding to the concerns and stock prices of companies had continued to correct with weak sales and delayed monsoon. The analysts feel that the aggressive inventory pushed during the March quarter could also weigh on June quarter volumes and the delay in the monsoon activity may again lead to high channel inventory.
Sowing activities increased considerably during the last week, led by better rainfall, which in turn resulted in the narrowing of acreage deficit on a weekly basis, said analysts at Prabhudas Lilladher.
Sowing and consumption had been delayed by 15-20 days because of the soft start of the monsoon, said analysts at Elara Securities India (Pvt) Ltd. The most adversely affected segment has been herbicides, because of reduced generation of weeds as a consequence of low rainfall, according to analysts.
Agrochemical sales suffered, but fertilizer sales are likely to have remained unaffected. This is because most farmers, concerned about shortages, are booking fertilisers in advance with cash payments, according to Elara analysts.
Meanwhile, domestic agrochemical companies are expected to register low double-digit revenue growth led by price hikes and strong inventory placement in the market (at the dealer level) ahead of the Kharif season, according to analysts at Antique Stock Broking. However, they anticipate that the industry is likely to witness margin pressure considering the inability to pass on high raw material costs fully.