Agri Input & Chemicals
Agri Digest – RM tailwind drives Q3 profitability despite muted volumes
* Q3FY17 revenue growth of agri-input companies was fairly muted due to (i) delayed start to the rabi season, (ii) deficient monsoon in South India resulting in lower sowing, especially of paddy, which consumes high quantity of fertilisers and pesticides and (iii) cash crunch faced due to demonetization, thus leading to a delay in purchasing of agriinputs. However, aggregate EBITDA for our coverage companies grew by ~23% yoy led by lower raw material cost and gas cost (for fertiliser companies).
* Rabi sowing ends at record level as acreages increase by ~6% yoy, with 100% of normal sowing area going under cultivation. Sharp increase was observed in pulses, wheat and oilseeds, while paddy area declined ~14% yoy.
* As per the 2nd advance estimates, total food grain production is estimated to touch record level of 271.7mn MT which is higher by 6.9mn MT than the previous record production of food grain of 265mn MT achieved during 2013-14
* Initial forecasts by various weather agencies predict a reoccurrence of El-Nino in 2017 which could result in deficient monsoon for India and harm the farming sector. However, the extent to which El-Nino could impact this year is still uncertain as the initial forecast is subject to revision as the season comes closer.
* Price of paddy and cotton are steadily increasing driven by lower output this year. However, yields are expected to be higher due to favourable weather and low pest attacks. Price of pulses continue to fall since last five consecutive months due to higher production and higher imports. Emkay agri-index has increased by 2% yoy/3%MoM.
* Sales of DAP/MOP increased by 9%/30% yoy during Rabi (up to January 2017). However, sales of urea were lower by 6% yoy and that of complexes were lower by 7% yoy due to higher channel inventory.
* Global urea prices continue to increase on the back of closure of certain capacities in China. However, prices of phosphatic fertilisers remained largely unchanged due to sluggish demand and oversupply.
* Coromandel International and Deepak Fertilisers are our BUY recommendations in the fertiliser segment. Within the agrochemical space, we prefer UPL Dhanuka Agritech and Insecticides India
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