Farm Inputs & Chemicals: Is the worst behind?

23 Nov 2023 , 11:09 AM

In Q2FY24, farm input companies performed better in the Indian market than overseas. However, the exports-focused companies witnessed one more round of earnings downgrades for FY24, as analysts of IIFL Capital Services performance came in weak. Destocking amid falling prices, subdued sales due to Chinese dumping and sales deferral on account of the move over to just-in-time inventory — were the key reasons cited by the companies. The players having direct and indirect exposure to agrochemicals saw greater pain, while favourable base limited the impact for companies having higher exposure to discretionary segments (dyes, pigments, polymers and textile). Management commentary continued to be positive, most highlighting that the “worst is behind” and 2H’24 will be better than 1H’24. 

Domestic Agchem performed better: 

Despite the challenging environment due to deficit monsoon, dry spells and lower pest attacks, farm input companies performed better in the Indian market vs overseas. Significant price drop for the few key active ingredients due to oversupply from China and higher channel inventory did impact companies like UPL and PI. Placements closure to the liquidation helped some of the domestic agchems. For UPL, ANURAS & RALI — international business remained challenging due to inventory destocking and pricing pressure on key generic AIs. 

Weakness persists in Chemicals: 

Most of the diversified as well as specialty chemical companies reported weak performance in Q2FY24. While drop in realisations due to cheaper imports impacted bulk chemicals such as PVC, bromine and soda ash, deferral of sales due to just-in-time inventory management weighed down on speciality chemicals. Some recovery was visible in dyes and pigments. Exports trending lower as realisation plummets: While there was an uptick in exports in Sep’23, the overall export remained below the monthly averages seen in FY23. Realisations for both chemicals and agrochemicals experienced a steep decline, potentially affecting the profitability of companies. Refrigerant prices have witnessed a steep fall of 20-40%YoY. Similar trend was visible in the generic active ingredients too.