Key takeaways from this edition of FARM FACTS are: 1) kharif season: Disparity in rainfall across India has impacted sowing (down ~1% despite surplus monsoon—6% above LTA); 2) crop prices: Prices of key cereals have remained at par YoY 3) fertilizer volume: Weak demand due to uneven rainfall has affected fertiliser consumption also (volume down 4% YoY in August); and 4) global commentary: Benign weather in LATAM continues to drive global agrochemical players’ revenue momentum. Despite India receiving surplus monsoon (6% above average LTA), our checks suggest kharif season has not panned out well for agri-input companies. However, high storage across reservoirs remains a silver lining for the upcoming rabi season. Given the favourable risk-reward, we like Dhanuka Agritech and Coromandel International. However, short-term challenges may cast a shadow on both players’ growth outlook
Kharif season: Uneven distribution of rainfall thwarts growth
Kharif season started on a soft note following late onset of monsoon. However, excessive rain spells across central and western India have cast a shadow on crop sowing with farmers shifting the crop pattern. By September 28, though crop sowing has largely been at par with last year, sowing of pulses and cereals still lags. Among non-food crops, increase in sowing of soyabean and cotton has resulted in an aggregate 1% YoY surplus despite being dragged by sugarcane sowing. As per the current reservoir level, upcoming rabi season is expected to remain positive.
Agri-input: Fertiliser volumes down; crop prices remain stable
Kharif season has remained tepid for agri-input consumption. Fertiliser volume (down 4% YoY in August) has contracted in light of soft demand. However, the 4% rise in NPKS (non-urea) sales in August remains a silver lining. Crop prices have remained stable, except for maize (up 34% YoY) and soyabean (up 23% YoY).
Global scenario: LATAM sustains growth; NAFTA drags momentum
Global agro-chemicals players’ commentaries reflect challenging environmental conditions across geographies of North America and Europe. However, LATAM continues to drive growth for global innovators. Despite Q2CY19 being a seasonally small quarter in LATAM, improved demand for agrochemicals on sugarcane and cotton spurred growth. Asia remained weak, primarily due to difficult market conditions.
Outlook: Government push and global agri-cycle key drivers
The pick up in global agrochemical cycle along with strong order books bodes well for CRAMS players such as PI Industries and SRF . While the domestic scenario remains bleak, we like Dhanuka Agritech (BUY) and Coromandel International (BUY) given their favourable risk-reward ratios.
Top picks: Dhanuka Agritech and Coromandel International.