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Agrichem Demand Wilts Amidst Erratic Monsoon
8 Oct
Summary
- Erratic monsoon rainfall has led to a significant drop in agrichem demand.
- Industry profits are suffering due to lower demand and rising input costs.
- Agrichem stocks have fallen between 18-40% over the past year.
Agricultural chemical companies anticipate a poor performance for the September quarter, largely attributed to erratic and insufficient rainfall that has diminished demand. This downturn is compounded by increased raw material prices and adverse operating leverage, collectively impacting profitability. Brokerages foresee downward revisions to earnings estimates for both the second quarter and the full fiscal year 2027, reflecting the prevailing slowdown and near-term outlook.
Revenue growth for major listed firms in the second quarter is projected to decline by up to 12% year-on-year. India's monsoon season concluded significantly below normal, marking the weakest performance since 2015, with the El Niño phenomenon expected to peak in November. Despite a stable kharif sowing area, dry spells in key states like Maharashtra and Karnataka have jeopardized crop yields.
Analysts predict a challenging period ahead, with specific companies expected to report substantial earnings before interest, tax, depreciation, and amortisation (Ebitda) declines. For instance, Coromandel International's Ebitda may fall by 56%, PI Industries by 36.7%, Rallis India by 26.5%, and Sumitomo Chemical India by 17.4%.
Dealer caution regarding inventory buildup persists as prices have trended downward since June. High-cost inventory is expected to create near-term pressure. Profitability challenges are anticipated due to weak demand and elevated input costs, driven by technical prices, currency depreciation, and freight charges. Elevated freight and crude prices are expected to keep overall input costs high, limiting companies' ability to raise prices and impacting margins.
Recovery in the agrichem sector is anticipated from calendar year 2027 onwards, with raw material prices expected to stabilize and cool off. Agri-input stocks may bottom out between October and December, followed by a rebound in the first half of calendar year 2027 and an earnings recovery from the first quarter of fiscal year 2028.
