Revenues of the Rs 47,000 crore agrochemicals sector is expected to grow at a healthy clip of 12-14% this fiscal, following a sharp recovery in offtake from domestic agriculture sector and continuing healthy exports.

Domestic revenue which accounts for almost half of the sector’s revenues, will grow at 10-12% this fiscal compared with 6-8% last fiscal. On the other hand exports, which rose ~15% last fiscal, are expected to maintain their pace at 13-15% this fiscal according to Crisil’s analysis of 33 agrochemicals manufacturers, which account for ~90% of the sector’s revenue .

About 65% of agrochemicals demand is derived from kharif (summer) season. An above-average and well-spread monsoon in the first half of the current fiscal has led to the kharif sowing area increasing to a 5 fiscal high at 111.6 million hectare. That, and an increase in average crop productivity could help up kharif output by 6-7% this fiscal.

Also, the present water reservoir level, which is at 87% of capacity, will ensure healthy increase in acreage in the forthcoming rabi (winter) season as well. Hence it is likely that overall foodgrain production in fiscal 2021 may exceed the initial target set by the government at 300 mn tonnes.

Says Sameer Charania, Director, Crisil Ratings, “Higher area under cultivation and ~4% increase in minimum support prices during kharif season for key crops such as paddy, cotton, groundnut, soybean and bajra (~66% of domestic crop production), will boost agrochemicals consumption this fiscal.”

Exports of agrochemicals should maintain last fiscal’s momentum, supported by healthy demand from the United States and Latin America (~42% of India’s exports). India’s strengths of being a low-cost manufacturer, an established presence in generics, and skilled labour availability continue to stand it in good stead.

Improved revenue and moderation in prices of key imported inputs due to improving supplies from China, will push up operating profitability of most agrochemicals players by 100-150 basis points (bps) to ~14% this fiscal, also aiding cash generation.

Working capital levels are expected to remain largely stable despite a slight stretch in receivables given that exports have a longer credit period. Capital spend (~Rs 5,000 crore by the Crisil sample set in fiscal 2020), should continue apace, and will be funded through a combination of debt and cash accrual.

Says Rajeswari Karthigeyan, Associate Director, Crisil Ratings, “We expect the credit outlook to be positive for agrochemicals players, due to healthy business performance and further strengthening of credit metrics this fiscal. Financial leverage (gearing) for the sample set is seen below 0.5 time (0.46 time in fiscal 2020) and interest cover above 8 times (7.01 times), reflecting strong debt metrics.

Crisil will continue to monitor the performance during the forthcoming rabi season, as well as any regulatory developments impacting the export and domestic consumption of agrochemicals.