New Delhi : Improvement in monsoon is expected to increase sales of agricultural inputs and cheer for manufacturers. Thus, it is not surprising that stock prices, which were lower during the June quarter, are also rebounding. UPL Ltd., PI Industries, Coromandel International and Sumitomo are up 10-19% from June lows, with Sumitomo seeing maximum gains.
“All India rainfall showed a decrease of 8% in June and is expected to increase in July, which could result in a normal monsoon,” said Sharekhan analysts. A timely and normal monsoon will result in strong agricultural crop production in Kharif. weather, which in turn could lead to an increase in volumes for agri-input companies amid already strong export demand. Lower acreage and postponement of actual sales (farmer to dealer) till 2QFY23 is not good news for agriculture stocks and will impact Q1 performance. Input cost pressures due to rising chemical prices continued to add to the concerns and stock prices of companies continued to improve with weak sales and delayed monsoon. Analysts believe aggressive inventory push during March quarter may also weigh on June quarter volumes and delayed monsoon activity could again lead to higher channel inventories.
Analysts at Prabhudas Lilladher said that due to better rains during the last week, there was a significant increase in sowing activities, which resulted in reduction in acreage on a weekly basis.
Analysts at Elara Securities India (Pvt) Ltd say there was a delay of 15-20 days in sowing and consumption due to the soft onset of monsoon. The most adversely affected segment has been herbicides, as it results in less generation of weeds. According to analysts less rain.
Sales of agrochemicals were hit, but sales of fertilizers are likely to remain unaffected. This is because according to analysts at Elara, most farmers, who are worried about shortages, are booking fertilizers with cash payments in advance.
Meanwhile, according to analysts at Antique Stock Broking, domestic agrochemical companies are expected to post low double-digit revenue growth ahead of the kharif season on account of price hike and strong inventory placement in the market (at the dealer level). However, he estimates that the industry is likely to see margin pressure given its inability to fully pass on higher raw material costs.
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