Farm Inputs & Chemicals: Pain continues, recovery now expected in H1FY25

23 Feb 2024 , 11:15 AM

In Q3, most of the domestic Agrochemical companies reported volume growth, despite the weak Rabi. However, exportfocused companies continued to face demand-led challenges. Weak demand, excessive dumping from China, steep price corrections and Red Sea issues — led to overall slowdown for diversified and specialty chemicals. Companies having exposure to the Discretionary segment (Dyes, Pigments and Polymers) performed better. Management of the companies now expect Q4 to be better off than Q3, and foresee recovery in H1FY25. 

Weak performance in Rabi: 

Below-normal rainfall and lower reservoir levels impacted sentiments in Rabi and led to weak performance by domestic agchem companies. Companies focussed on placements closure to liquidation and marketing efforts were able to do well, while significant price decline of key active ingredients impacted the overall performance. Godrej Agrovet standalone crop protection and BASF India (agri business) displayed strong growth, while others posted revenue decline or low-single-digit growth. 

Yet another weak quarter for Chemicals: 

Most of the specialty chemical and agchem heavy companies reported weak performance in Q3FY24. Companies like Aarti Industries, Sudarshan Chemicals and Rossari Biotech reported revenue growth due to favourable base and early signs of demand recovery in end-user industries like Dyes, Pigments and Polymer. Imports of soda ash, bromine and PVC remained elevated and continued to impact import substitution. Exports, too, were impacted due to deferment of orders from Q3 to Q4, as customers opted for lean inventory in Dec’23. 

Downgrades continue:

Weak performance in Q3 resulted in one more round of earnings downgrade. Companies having higher exposure to agrochemicals saw steeper downgrades; while the cuts were limited for the Discretionary segment. With destocking about to end, pricing uptick remains key for the performance to improve.