UPL , Coromandel International and Dhanuka Agritech remains top buy for Edelweiss in Agri Space

Edelweiss highlights that despite last year’s high base, agri-inputs companies sustained the growth momentum during Q3 FY21; Edelweiss coverage universe thereof delivered 7% YoY growth. Greater crop sowing (up 3% YoY) as well as improvement in farmers’ liquidity position (higher procurement by government) kept agri input consumption robust. 

The surge in crop prices along with favourable climatic conditions across Europe and NAFTA helped UPL and Sharda Cropchem deliver strong volumetric growth. PI CSM’s business sustained growth momentum. Edelweiss believe the agri-inputs industry is poised to keep growing over ensuing quarters. UPL, Coromandel international and Dhanuka Agritech remain Edelweiss top sector pick.

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Agrochemicals: Strong quarter driven by surge in crop sowing

Despite the high base of Q3FY20 as well as challenging environmental conditions across southern India, agri-inputs sustained strong strong growth driven by good reservoir levels along with higher liquidity among farmers. Edelweiss agri-input universe reported a 7% YoY uptick in top line. Among domestic players, Rallis India reported 15% YoY growth in the domestic formulation business. 

PI Industries reported healthy 26% YoY growth driven by incremental revenue contribution from Isagro. Dhanuka Agritech revenue growth remained moderate at 9% YoY due to the negative impact of rains in south India. Among global players, UPL’s volumetric growth at 7% YoY was aided by strong demand across Europe and India; however currency impact of -5% restricted top-line growth to 3% YoY. Sharda Cropchem reported a sharp improvement in performance, with margin expansion driving overall profitability.

Fertiliser: Spurt in volumes aided growth

Fertiliser consumption during Q3FY21 continued to trend up owing to an increase in overall crop acreage (up 3% YoY). For Coromandel International, volume growth in the phosphatic segment remained strong at 9% YoY. Margin expansion has been a key positive for the company with EBITDA/t of about INR5200. However, the recent spurt in phosphatic-acid prices (up 15% QoQ) may impact margins ahead.

Outlook: Good reservoir levels to yield to timely kharif

Edelweiss expect the uptick in agri-inputs to sustain over the next two–three quarters with reservoir levels remaining favourable. Edelweiss expect record crop production along with higher government procurement to drive up farmers’ income levels. In International markets, growth revival across Europe and North America bodes well for UPL and Sharda Cropchem. 
While currency headwinds from Latin America might keep margins under pressure, postponement of sales to Q4 in Latin America should help keep up the momentum.