Domestic Demand to Increase Agrochemical Sector's Revenue Growth by 12 -14 Percent

Due to a sharp recovery in offtake from domestic agriculture sector and continuing healthy exports, the agrochemical sector's revenue is likely to grow by 12-14 percent in the ongoing financial year. The aforementioned information is concluded according to a report by Crisil. Domestic revenue, which accounts for almost half of the sector's revenue, will grow at 10-12 per cent this fiscal as compared with 6-8 per cent growth last fiscal, Crisil Ratings said in a report. On the other hand exports, which rose by 15 percent last fiscal, are expected to maintain their pace at 13-15 percent this fiscal according to CRISIL’s analysis of 33 agrochemicals manufacturers, which account for 90 percent of the sector’s revenue.

“Higher area under cultivation and 4 percent increase in minimum support prices during kharif season for key crops such as paddy, cotton, groundnut, soybean and bajra (66 percent of domestic crop production) will boost agrochemicals consumption this fiscal,” said Sameer Charania, Director, Crisil Ratings.

Crisil Ratings said about 65 percent of agrochemicals demand is derived from kharif (summer) season. An above-average and well-spread monsoon in the first half of the current financial year has led to an increase in kharif sowing area to a five-fiscal high at 1,116 lakh hectares which could help the output by 6-7 percent this fiscal, it added. Besides, the present water reservoir level, which is at 87 percent of capacity, will ensure a healthy increase in acreage in the forthcoming rabi (winter) season as well.

Working capital levels are expected to remain largely stable despite a slight stretch in receivables given that exports have a longer credit period

Hence, it is likely that overall food grain production in fiscal 2021 may exceed the initial target set by the government at 3,000 lakh tonnes, the report said. Exports of agrochemicals should maintain last fiscal's momentum, supported by healthy demand from the United States and Latin America (42 percent of India's exports).

Working capital levels are expected to remain largely stable despite a slight stretch in receivables given that exports have a longer credit period. “We expect the credit outlook to be positive for agrochemicals players due to healthy business performance and further strengthening of credit metrics this fiscal,” stated Rajeswari Karthigeyan, Associate Director, Crisil Ratings.

India's strengths of being a low-cost manufacturer, an established presence in generics and skilled labour availability continue to stand it in good stead, it added. Meanwhile, improved revenue and moderation in prices of key imported inputs due to improving supplies from China will push up operating profitability of most agrochemicals players by 100-150 basis points to 14 percent this fiscal, also aiding cash generation.