‘Agrochemical sector to see higher growth next fiscal on stable domestic demand and recovery in export volumes’
Agrochemical sector is set to see a higher growth rate next fiscal on stable domestic demand and recovery in export volumes, said CRISIL Ratings.
“After a modest 5-6 per cent growth in the current fiscal, the agrochemicals sector is poised to grow at 7-9 per cent in the next fiscal. While this will be on the back of stable domestic demand and recovery in export volumes, a historically low realisations will continue to hinder a return to double-digit growth seen before the Covid-19 period,” CRISIL Ratings said in a statement.
“Operating margins are also seen to be recovering slowly, rising by about 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. Our analysis of agrochemicals makers, that account for nearly 90 per cent of the sector’s total revenue of around ₹82,000 crore last fiscal, indicates as much.” CRISIL said.
Chinese competition
“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. 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,” said Anuj Sethi, Senior Director, CRISIL Ratings.
Conversely, 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. This is despite continuing pricing pressures from oversupply in China, albeit less severe than last year. “We expect this trend will continue, leading to fewer instances of inventory write-offs. Additionally, with improved volumes, the sector’s profitability is expected to improve.”
Naren Kartic K, Associate Director, CRISIL Ratings said, “We expect the sector’s operating margin to improve slightly to about 12 per cent this fiscal and around 13 per cent next year. But ongoing pricing pressures will limit this growth despite higher sales volumes. Consequently, most companies will continue to prioritise maintaining healthy balance sheets by managing working capital and limiting capex intensity at less than 1x in each of the next two fiscals.”