Deficient monsoon casts cloud over agro-chemicals sector

| Updated on: Jun 09, 2015

Since April 23, the day after the Indian Meteorological Department (IMD) first announced its long-range forecast for the South-West monsoon, stocks of agro-chemicals companies have been mixed.

As of Monday, BASF India, Insecticides (India) Ltd (IIL) and Bayer CropScience have fallen 11.2 per cent, 8.8 per cent and 2.5 per cent respectively over the period on the BSE. However, others such as Dhanuka Agritech, Rallis India and Excel Crop Care have gone up 0.72 per cent, 1.1 per cent and 14 per cent.

The sentiment has been affected badly, said industry sources, adding that different predictions on the quantum of rainfall are making it difficult to make any assessment for the this Kharif season.

Reduced production

“Companies have reduced planned production to just two months from three-four months earlier factoring in monsoon forecasts. No one is planning big sales, neither manufacturers nor distributors, and determining investments into specific products is being worked out,” said Rajesh Aggarwal, Managing Director, IIL.

Experts said delayed onset — the monsoon hit Kerala only on June 5 — and poor pre-monsoon showers do not auger well for the industry. Sales generally pick up by May — when sowing is underway — and peak by July. “There is a lull in the market and there could be a production drop. This could cause a more than normal shortage in July, the biggest month for sales, and prices will rise. However, if there is a drought then demand will drop and prices should stay stable,” Aggarwal told BusinessLine .

Depends on who’s right

It will come down to whether the IMD’s prediction of 88 per cent rainfall of the 50-year Long Period Average (LPA) of 89 cm is correct or private agency Skymet’s prediction of an above-normal monsoon with rainfall expected to be 102 per cent of the LPA.

“There are mixed forecasts but if it’s well distributed then impact should not be largely negative. If it goes far below IMD’s prediction then industry could register single-digit growth, between 5 and 10 per cent,” said RG Agarwal, Chairman, Dhanuka Agritech.

During years of normal monsoon, the industry grows at a compounded annual growth rate of 20 per cent. If demand contracts, already lowered prices could be slashed by up to 15 per cent, said industry sources.

“Skymet is expecting a good monsoon. If you look at the smallcap and midcap indices then yes, the sector was hit badly over the last year. But the issue is not specific to the sector, it’s a weak market overall. That’s why it is too early to comment,” said Alex Mathew, Head of Research, Geojit BNP Paribas Financials Ltd.

Published on January 24, 2018

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