Agrochemical companies (updated - 18 Nov 2009)
A soft exports market and unpredictable monsoon in India, a majority of the agrochemical companies in India have done well in the September 2009 quarter. The reason lies hidden in the various agriculture-oriented schemes introduced by the government over the past couple of years: debt waiver, NREGA and substantial increase in minimum support prices of various crops. The increased liquidity in the hands of farmers is enabling them to invest more in their farms resulting in growing consumption of agrochemicals.
That the aggregate numbers for the quarter don’t reveal the full story is another matter. A closer inspection shows that the fall in the industry’s aggregate profits is mainly from extraneous reasons while their core business grew in profits. Out of the nine large agrochemical companies, only three suffered profit erosion. Others posted profit growth — over 50% in case of some.
It must be noted that the September quarter this year, which is the most important quarter for the industry due to the kharif season, witnessed deficient rains and reduced acreage. The Southwest monsoon rains were 23% lower in the June-September 2009 period against the long-term average. The overall acreage under cultivation, for the season, also came down 6% against the year-ago period.
At the aggregate level, nine leading agrochemical firms reported a 7.9% fall in profits to Rs 248.6 crore in September 2009 against Rs 270 crore last year. However, all the three companies that saw their profits decline - United Phosphorous, Meghmani Organics and Punjab Chemicals - had their own set of problems.
Meghmani Organics, which posted a 17.6% profit growth in its agrochemicals division, increased its standalone profit for the quarter. However, heavy losses in its overseas arms wiped out profits at the consolidated level. While in case of Punjab Chemicals, the company posted losses, as its plant remained partially shut down throughout the September 2009 quarter due to fire.
The largest amongst those did well - Bayer Cropscience and Rallis India - posted a double-digit sales growth, although their profit growth was in single digit. Nagarjuna Agrichem and PI Industries were the two companies to raise their profits by over 50% against the year-ago period, while Insecticides India posted a growth of 47.6%. Even companies like Sudarshan Chemicals, which derives more sales from products other than agrochemicals, registered profit growth in the agrochemical division during the September 2009 quarter.
With fresh bouts of rains in October and November, the rabi season is expected to be better for the domestic agriculture. This could increase the area under cultivation as well as the domestic agricultural production, which bodes well for agrochemical players, going forward.
Sector Specific - Agrochemical
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