Agrochemical manufacturers may continue to see headwinds faced by them in the earlier quarters impact their Q3 performance too. While the December quarter remains seasonally weak, the inventory destocking that has continued to pose headwinds for the manufacturers during the past few quarters will still have some impact. The manufacturers that may have reduced high-cost inventories may be better off and may see better margins than those who still are in the process of reducing the inventories yet. The demand that has remained weak, impacted by uneven monsoon during the earlier quarter may not improve significantly in the seasonally weak December quarter. The exporters of generics may continue to face pressure in the December quarter too feel analysts.
Analysts at Centrum Broking said that the Agrochemicals sector has been reeling under pressure since the past few quarters from exports, which has impacted first half FY24 performance. Due to seasonally weak Q3 coupled with ongoing inventory destocking, exports are likely to remain subdued in Q3FY24 too.
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Even analysts at Elara Securities India Ltd said that the earnings trajectory of agrochemicals companies under their coverage in Q3 is expected to be divergent. Companies that are light on channel inventory and have liquidated high-cost inventory are likely to be on a strong footing while earnings for the rest of the universe are likely to be under pressure.
Industry veterans as S K Chaudhary, founder director of Safex Chemicals, said that Agrochemical producers can be classified broadly under three categories. Those who are producers of formulations, those producing generics and exporters. The demand in the country has seen the impact of uneven distribution of monsoon. The states of Karnataka and Maharashtra have seen maximum impact. The yield of crop has remained impacted in the Kharif season and Rabi season is also seeing yields under pressure. The demand in the December quarter was not good and Chowdhary said that in the March quarter it may not pick up substantially.
The inventory problem will normalize only when El Nino’s impact normalizes, said Choudhary. i.e the demand picks up.
Overall analysts and experts remain cautious on near term outlook.
Amongst companies analysts at Centrum say that except for Dhanuka Agritech and PI Industries, all the companies under their coverage are expected to report year on year decline in revenues and EBITDA. Dhanuka’s performance is supported by lower raw material prices while PI’s performance is supported by year on year growth in CSM and contribution from pharma segment.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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Published: 09 Jan 2024, 05:51 PM IST