Essence-pesticide-global-marketing-area

 

Essence-pesticide-transportation

India Agrochemicals – Blessing in Disguise

Posted on 2020-11-12
While the entire world is grappling with the Covid-19 calamity, some business segments have been largely unaffected and this calamity has turned into an opportunity for them. While globally, the Covid-19 pandemic has impacted most of the sectors with varying degrees, food related segments have scathed through without material harm. 
 
As the most essential need, food has been the priority and segments associated with food have been the beneficiaries including food packaging, food delivery, agrochemicals among others. 
 
Segments associated to food have gained prominence in Indian context too and agrochemicals being classified as essential sector had relatively lower impact of lockdowns and became one of the best performing sectors during the last few months.
 
Kharif Sowing (Latest) – ~5% year-on-year in Sowing Area
 
Generally, the agrochemicals sector has shown resilience across different continents excepting for vagaries in weather patterns. India however, has experienced favourable agri dynamics with the onset of monsoon at the right time (across states) and better year-on-year water reservoir levels. Due to the Covid-19 pandemic, there was an exodus of labourers from the urban region to the rural (native) areas which bolstered the availability of labourers during the planting season benefitting overall sowing of Kharif crops.
 
1.png
All India Kharif Sowing Area
 
Kharif data for 2020-21 (end-September) elucidates the favourable agri dynamics in India with overall sowing area up ~5% on a year-on-year basis. Compared to earlier years where the sowing area remained almost flattish, growth for the current year bodes well for the entire agri inputs sector (both agrochemicals and seeds). Current year’s growth is primarily driven by Rice/ Paddy which accounts for more than 1/3rd of total crops sowing area, followed by Oilseeds and Pulses. Reaching the fag end of Kharif season, it can be assessed that Kharif sowing area is expected to be maintained at ~6% higher levels on a year-on-year basis.
 
Risen Water Reservoir Levels – Bodes Well for Upcoming Rabi Season
 
India, being predominantly a rainfed agri economy, monsoon remains a key driver for Kharif season while Rabi season is driven by water reservoir levels. Good monsoon aids both Kharif as well as Rabi season which under the current situation seems to keep the water reservoir levels elevated for the upcoming Rabi season.  Healthy sowing area growth in Kharif season along with the expectations of a good Rabi season is likely to help growth in overall agrochemicals segment complementing sales growth for key large and mid-size Indian agrochemical companies. 
 
2.png
All India Water Reservoir Levels
 
Ban on 27 pesticides – No Immediate Threat
 
Much has been talked about the Indian government’s draft order on banning certain pesticides based on a report which suggests that the use of 27 insecticides as specified in the notification are likely to involve risk to human being and animals. Post the draft order there have been consultations among the government, market participants, regulatory bodies, and industry associations. Currently the matter is still under discussions and a decision would be taken considering all the elements pertaining to these pesticides. Based on the interactions with corporate managements, regulatory authorities etc. it seems that a blanket ban order is unlikely and decision would be taken considering merits of each pesticide from both manufacturers’ and farmers’ perspective. Till then sales of these pesticides shall continue.
 
Indian Manufacturers of Pesticides 
 
3.png
Indian Manufacturers of Pesticides
 
Agrochemical sales During April-June Quarter – One of the Best Quarters for Indian Agrochemical Companies
 
Indian agrochemical companies depend partially on imports of some of the agrochem intermediates as well as technicals from China. Although, supply chain was constrained due to Covid-19 during February/ March, Indian manufacturers were carrying sufficient inventories for the upcoming Kharif season. Also, post easing of the Covid-19 situation, imported supplies resumed thus enabling availability of RM, intermediates, and technicals.
 
Unfortunately, the smaller players were impacted due to Covid-19 lockdowns, labour shortages, nonavailability of some RM/ intermediates among others. Contrarily, the mid and large size players benefited due to their streamlined operations, safe manufacturing practices, funds availability, sufficient inventories of RM/ intermediates, and early adoption to changes. 
 
4.png
Source: Company Filings, Note: * Only India agrochemical sales, @ Incl. exports, # Incl. seed sales 
 
Sales Performance of Key Agrochemical Companies During April-June Quarter
 
Indian agrochemicals space is at the cusp of growth wave due to multiple levers including technology adoption, self-reliance on key RM and intermediates, government initiative of “Make In India/ Aatma Nirbhar Bharat”, incentive schemes among others. Additionally, favourable industry dynamics over the past few years has led to availability of funds/ cash flows with the Indian agrochemical players in turn paving way for future growth through backward integration, capacity expansions, collaborations with foreign partners, new product launches, geographical expansion, acquisitions etc. 
 
Indian agrochemicals space is standing at an inflection point with a long way to grow.

 


Source: AgroNews