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 The agrochemicals sector in India is poised to grow at 7-9 per cent in the next fiscal, after a modest 5-6 per cent growth in the current fiscal, a report showed on Friday. 

The growth will on the back of stable domestic demand and recovery in export volumes, according to the CRISIL Ratings report.

Operating margins are also seen to be recovering slowly, rising 100 basis points to 12-13 per cent — still below the pre-pandemic levels of 15-16 per cent.

This will keep firms cautious with capital expenditure and focus on managing working capital to keep their cash flows and balance sheets steady.

Anuj Sethi, Senior Director, CRISIL Ratings, said that revenue from exports, which comprises half of the sector's total revenue, is witnessing change.

“Global firms have largely resolved their excess inventory issues related to low-cost Chinese supplies and are now ordering closer to the cropping season to better manage working capital,” Sethi added.

“While we expect healthy volume growth this fiscal, revenue growth will be modest at 3-4 per cent amid pricing pressures from competitively priced Chinese products. In the next fiscal, this may improve to over 7 per cent as these pressures ease,” he noted

The domestic revenue is seen rising by 8-9 per cent this fiscal due to good monsoon and adequate reservoir levels, which are boosting agricultural output.

The report expects this trend will continue, leading to fewer instances of inventory write-offs. Additionally, with improved volumes, the sector's profitability is expected to improve.

“We expect the sector's operating margin to improve slightly to about 12 per cent this fiscal and 13 per cent next year,” said Naren Kartic K, Associate Director, CRISIL Ratings.

Control over debt and gradual improvement in operating profitability will lead to sustenance of stable debt protection metrics over the near to medium term, the report mentioned.