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Agrochemical companies are expected to continue their sub -par performance as most of the demand driving factors (pest infestation, crop prices, weather conditions) remain under stress. The domestic agrochemical industry is likely to see a decline in volume in Q3 as higher sales return of the kharif season (in October) would have offset the placement growth of the Rabi season. Within Fertilisers, Urea and DAP volumes are stable at +1% growth and -2% drop respectively ,while NPK volumes have declined -15% for the industry .

A tale of adverse realizations, weather and crop output: In India , unseasonal and extended rainfall in October extensive ly damage d crop protection consumption (the last window for Kharif season application was also lost ). Crop damages were higher than normal (also in specific crops )

Lower crop, horticulture and grain prices ha ve reduced farmers’ purchasing power , leading to lower sale of specialty crop protection chemicals as well as lower seed sales. Declining maize prices have led to crop rotation to jowar in some areas. Chilli, horticulture crops , especially grapes , saw a significant drop in crop protection consumption. Region - wise, South and West India saw a sharp decline in agrochemical demand , while East and North are stable markets. Channel inventory is also elevated for some mu ltinationals.

Raw material prices to hurt profitability of fertilizer companies: Within fertilizers , rising sulphur and ammonia prices are creating headwinds for fertilizer companies. To offset that, fertilizer companies have taken marginal price hike as nutrient based subsidy for Q3 is not remunerative enough. Despite price hike, we expect higher raw material prices to weigh in on the profitability of the fertilizer business for complex fertilizer manufacturers.

Continue to prefer fertilizers over agrochemicals: We continue to prefer fertilizer companies over their agrochemical counterparts due to several growth opportunities offered by the sector without any meaningful risk. We like UPLL and SUMICHEM with the agrochemical sector. Within fertilizers, we like Coromandel International, PARADEEP and Chambal Fertilisers.

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