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PL Sector Report - Agro Chemicals - Apr-Jun’23 Earnings Preview – Lackluster performance likely in 1Q’24
Agro Chemicals - Himanshu Binani - Research Analyst, Prabhudas Lilladher Pvt LtdApr-Jun’23 Earnings Preview – Lackluster performance likely in 1Q’24We...
Agro Chemicals - Himanshu Binani - Research Analyst, Prabhudas Lilladher Pvt Ltd
Apr-Jun’23 Earnings Preview – Lackluster performance likely in 1Q’24
We expect companies in our coverage universe to report Revenue/EBIDTA/ PAT 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 (PLe -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 RM cost scenario. Further, revenue decline in fertilizer companies is in-line with decrease in subsidy rates from the Govt. We expect overall volume growth to be in mid-single digits (largely led by higher marketing volumes) and profitability (EBITDA/MT) to be lower YoY due to inferior product mix and further provisioning of high cost inventories amid falling RM cost scenario.
We continue to maintain our cautious stance on the sector largely led by a) delayed monsoons with looming fears of El-Nino in 2H of the monsoon season (Mid-august to September); b) pressure on price realizations amid falling RM cost scenario (particularly generic molecules); and c) higher base of last year (for agrochemicals 1QFY23/1HFY23 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 in agrochemical space and Coromandel International in fertilizer space.
Late onset of monsoons…Monsoons this year were delayed by ~15+ days (deficit of 53% during first fortnight of June’23) due to Cyclone Biporjoy. However pick-up in rainfall activities by second fortnight of June’23 resulted in narrowing down of rainfall deficit to 16% for the 1st month (June) this season. Going forward, near term (July month) outlook remains good, yet concerns of El-Nino getting stronger from Mid-august to Septemer’23 may likely impact overall rainfall activity.
…impacting crop acreages till date: Crop acreages as on 30th June’23 were flat YoY (+0.4% YoY) with paddy and cotton down 26%/14% YoY till date. Acreages for other major crops like pulses, coarse cereals and oil seeds were up -2%/+62%/+15% YoY respectively. However, with decent pick up in rainfall activity across regions we expect gradual improvement in sowing activity.
…impacting water reservoir levels: As on 30th June’23, water storage levels in India's 143 reservoirs stood at 27% of the total capacity. Water storage level was down 2% YoY; however higher by 10% as compared to last 10 years average. North, East, West, Central and South have storage capacity of 43%/ 19%/ 24%/ 34% and 20% respectively. Further, 3 out of 143 reservoirs in India (2% of total) have water levels higher than 70% of total storage capacity.
