Normal monsoon likely to boost prospects of farm input manufacturers

A strong winter crop has already boosted incomes of farmers, which is likely to support demand for inputs such as nutrients, fertilizers, seeds and crop protection solutions. Rising minimum support prices (MSPs) for various crops in India and an uptick in global crop prices are also promising for producers and exporters. Even exporters of foodgrains such as rice, in the listed space, should see benefits accrue.

“India is set to receive its fourth consecutive spell of normal monsoon,” said analysts at Edelweiss Securities. They believe it is a key positive for the growth of agri-input players. The prospects of the kharif season are good with crop prices inching above MSPs. Good cash flows with farmers, as well as timely monsoon, can propel a prosperous kharif season, said analysts at Edelweiss.

High global crop prices, government support for farm produce at MSP and expectation of another year of normal monsoons bode well for volume growth for agri-input companies, said analysts at Sharekhan by BNP Paribas.

Strong expectations of demand and growth are also positive for companies to pass on the cost pressures. Input prices have continued to rise for both chemical and fertilizer manufacturers. However, experts believe that manufacturers may be able to pass on costs over time, as the overall demand environment remains strong and higher crop prices should support farmer purchasing power. As domestic manufacturers pass through costs in a staggered manner, exporters remain better-placed as firm global crop prices have already been helping them pass on costs.

Analysts believe this will be evident in the Q4 performance and exporters are expected to outperform domestic manufacturers. Better weather conditions globally, a robust agri-input demand scenario, remunerative crop prices globally, and a positive currency impact are some other factors that are favourable for exporters, according to analysts at Prabhudas Lilladher.

“A favourable global agriculture landscape should support strong growth momentum for the exporters UPL Ltd and PI Industries (estimated revenue growth of 17%-18% y-o-y during Q4),” analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd said in a recent report.

HSBC estimates domestic-focused players’ growth between 8% and 12% (both volume and pricing led) but a staggering cost pass-through is likely to impact margins, it said.

Exporters remain better placed, but domestic manufacturers are likely to catch up with normal monsoon supporting demand growth.

Domestic formulators remain well placed to deliver growth, aided by last year’s low base, a spurt in product prices, a better liquidity position of farmers, and anticipation of the timely arrival of monsoon, said analysts at Edelweiss.

The Russia-Ukraine conflict has also led to an impact on exports from the region for wheat, sunflower, barley, rapeseed, maize, among other things. Exports from India thus continue to rise.