Revenue growth for listed majors in Q2 is expected to witness a decline of up to 12 per cent year-on-year due to the erratic monsoon and its subsequent impact on offtake and consumption of agricultural chemicals. India’s monsoon ended 12.2 per cent below normal, the weakest since 2015, and El Niño is set to peak in November. While the kharif area is flat year-on-year, dry spells in Maharashtra and Karnataka have put yields at risk. Nuvama Research expects the Q2FY27 performance of its agricultural chemical universe to remain weak, with Coromandel International expected to report a 56 per cent decline in earnings before interest, tax, depreciation and amortisation (Ebitda), while the metric for PI Industries, Rallis India and Sumitomo Chemical India is expected to decline by 36.7 per cent, 26.5 per cent and 17.4 per cent, respectively.
Elara Securities expects its agrichem/fertiliser coverage universe to report a 7 per cent decline in revenue, while Ebitda and net profit are expected to drop by 13 per cent and 31 per cent, respectively. Prashant Biyani of the brokerage believes that an erratic monsoon left western and southern India in a rain-deficit situation through most of August and September, hurting both fertiliser offtake and agrochemical consumption. While agrochemical consumption is weak due to lower pest and fungal infestation, the situation is not as dismal as in the case of fertilisers. This is due to limited placement in Q1, rains in the last 10 days of Q2 aiding consumption and a lower base last year, says the brokerage.
Dealers remain cautious about building inventory, as prices have trended downwards since June after an initial spike in March-May due to the West Asia war. High-cost inventory may exert pressure on agrochemical players in the near term. Brokerages expect the sector to face profitability pressures going ahead, given weak demand and higher input costs. Industry costs, according to Antique Stock Broking, rose over March-May, driven by higher technical (concentrated active chemical) prices, rupee depreciation, freight, packaging and solvent prices.
While some input costs have corrected to pre-war levels since June, Manish Mahawar and Riju Dalui of the brokerage expect elevated freight and crude prices to keep overall input costs high. At the same time, weak demand and elevated channel inventory have limited agrochemical companies’ ability to raise prices, which is likely to weigh on margins in the near term. Considering the challenging first half of FY27, the brokerage is trimming its earnings estimates and target prices for its coverage universe. Its key picks in this space are Sumitomo Chemical India and Dhanuka Agritech.
On the outlook, Elara Securities expects fertiliser raw material prices to peak and cool off gradually. On the demand side, recovery is expected from CY27 onwards as El Niño ends in February. Agri-input stocks should bottom out between October and December and rebound in H1CY27, followed by an earnings recovery from Q1FY28 onwards. Within the fertiliser space, it prefers Paradeep Phosphates and Coromandel International, while it prefers Dhanuka Agritech and Bayer CropScience within agrochemicals.
