Looking to improved returns

As 25 per cent of the global crop is lost to pests, weeds and diseases, agrochemicals can play a big role in enhancing productivity and crop protection

India is the fourth largest global producer of agrochemicals after the US, Japan and China. The turnover of the industry has been estimated at $4.4 billion in FY15 and is expected to grow 7.5 per cent per annum to reach $6.3 billion by FY20. While about 50 per cent of the demand comes from domestic consu­m­ers, the rest goes towards exports, acco­r­ding to a study by Tata Strategic Man­a­g­ement group. While the domestic demand is expected to grow 6.5 per cent a year, exports may grow 9 per cent, the study commissioned by industry chamber Ficci said.

Rising population has increased demand for food all over the world. To meet food and nutrition needs of the growing population, a sustainable approach is required with thrust on increasing productivity. To meet the changing needs, a push from all stakeholders –farmer, government and agrochemical industry – is required, the study said. Approximately 25 per cent of the global crop is lost to pests, weeds and diseases, which do not augur well when stress is to increase farm productivity.

Agrochemicals can play a major role in enhancing productivity and crop protection after harvest. Agrochemicals are diluted in recommended doses and applied on seeds, soil, irrigation water and crops to prevent damage from pests, weeds and diseases. Insecticides are the largest sub-segment of agrochemicals with 60 per cent market share, whereas herbicides with 16 per cent market share are the fastest growing segment in India.

In India as well as the world, FY15 was a challenging year for the crop protection chemicals market. While the Indian pesticides industry experienced a marginal growth of 2 per cent in FY15, globally the crop protection chemicals’ sales declined in the calendar year, with the sharpest falls occurring in Europe and Latin America. Weakening herbicide prices, varying weather, including the El Nino phenomenon and weak rainfalls, caused a slump in sales. Commodity prices declined worldwide, making it imperative for farmers to moderate costs. In several countries, local currencies weakened against the US dollar, and that also affected the trade. In such a situation, companies were left to grapple with high inventories.

Exports from India increased marginally by 2.5 per cent in FY15. Good monsoon and a better spread of rainfall compared with the past two years caused higher demand for pesticides in the 2016 kharif season. This made companies to go into an overdrive after two years of lull.

On September 27, the world’s leading pesticides manufacturer Bayer, opened a new global formulation technology laboratory in Vapi, Gujarat. The Rs 15 crore centre will provide active ingredients for Bayer all over the world. “With our innovative crop protection products, we are contributing to finding solutions to some of the major challenges, including feeding a fast growing world population,” said Bernhard Grimmig, global head of formulation technology at Bayer’s crop science division.

The company is aiming at providing high-yielding seeds, efficacious and safe crop protection solutions and services for farmers to secure their harvests and incomes, he said in a statement.

With this new facility, the company aims to increase resource flexibility in its global formulation activities, helping to increase its capacities for innovations around formulation and delivery technologies. The new unit will focus on developing seed treatments, herbicides, fungicides, and insecticides for local as well as regional and global demand.

Bayer has been present in India for some time. It develops and produces crop protection chemicals as well as seeds for vegetables and arable crops. The transformation and importance of the Indian agriculture in the last decade has been a critical factor in determining Bayer’s long-term investments in the country. It is also trying to meet the growing demand for improved seeds, professional pest management products and integrated crop management solutions for major agricultural crops.

In the last few years, Bayer has been making strategic investments in various research and development, production and infrastructure projects in India, said Richard van der Merwe, a senior executive in south Asia.Other crop protection chemicals producers are also increasing their focus on India. It became evident from the tieup between Insecticides (India) (IIL) and Nihon Nohyaku Co of Japan to launch Suzuka and Hakko in the country. Suzuka is a new generation insecticide, which controls lepidopteran pests in crops like paddy and vegetables; Hakko is an insecticide for paddy crop. “We always strive to bring the new technology products to the farmers. This is another addition to our product range,” Rajesh Aggarwal, IIL mana­g­ing director said in a statement in August.

The company, which reported Rs 988.15 crore turnover in 2015-16, owns the Tractor as well as Lethal, Victor, Hijack, Xplode, Mycoraja, Monocil and Prime Gold brands. Another leading pesticides major Dhanuka Agritech registered a 10 per cent rise in net sales at Rs.198.40 crore in Q1FY17 against Rs 180.41 crore year-ago. Dhanuka’s net profit for the quarter also increased to Rs 19.35 crore from Rs 18.56 crore. “Dhanuka Agritech continues to ac­h­ieve growth during this quarter as well. De­s­pite delayed monsoon, we have ach­i­e­ved moderate sales growth. South and north zones are our key markets and have done well in this quarter,” said MK Dha­nuka, MD of Dhanuka Agritech.

India is heavily dependent on monsoon and so is the sale of plant protection chemicals, he said. However, this year, as most part of the country witnessed above normal monsoon in July, sales of agrochemicals picked up from July onwards. “We are confident the second quarter will be a bumper quarter for agri-input companies as well as Dhanuka,” he said in a statement in Aug­ust. The company has technical tieups with four firms in the US and Japan, each.

The Rs 1,200 crore agrochemical company Crystal group recently acquired Bavistin from BASF India’s fungicide brand. Crystal Crop Protection has signed an MoU with BASF SE, Germany and BASF India to acquire Bavistin, a company statement said in July. Used on rice crop, this pesticide is also sprayed for seed treatment in many other cereals, pulses and oilseeds crops. With the addition of Bavistin, Crystal expects to boost its topline by 7-8 per cent.

India’s top pesticide manufacturer UPL will invest $400 million in Brazil to build new capacity while divesting its entire stake in a joint venture in Bangladesh to consolidate its overseas business. The company, which signed an agreement with the Brazilian government on September 22 in New Delhi, will invest $300 million in next three years to set up a plant for making various agrochemicals. It will also invest $100 million in pulses research.

The Rs 13,413 crore company UPL plans to produce 150,000 tonne of agro chemicals at the Brazilian plant that may also cater to demand from other south American countries. It has 28 manufacturing units across the globe – 13 in India, 7 in Europe, 1 in North America, 4 in Latin America and 3 in other countries.


1) Company review: PI Industries

Business & background: PI Industries is a leading agri input and custom synthesis and manufacturing company in India

Prospects: According to a September report by Anand Rathi, driven by its branded product-mix, product launches and expanding capacities at Jambusar, the company expects revenue/ PAT to register CA­GR of 20 per cent to 20.2 per ce­nt over FY16-18. Greater capacities at the Jambusar plant led to rising production volumes. The first quarter revenue grew 15 per cent YoY due to 20 per cent export growth. The focus on a better product mix would take the operating margin to 22 per cent by FY18. “The disciplined approach to channel sales has led to lower inventories. Launches and on-going capex to add to growth momentum. Farmers have responded well to the newly launched herbicide Legacee. Vibrant, BioVita, Osheen and Keefun will aid future performance,” it added.

Valuation: At Friday’s close, the stock traded at 36.31 times the EPS for the past four quarters.

2) Company review: United Phosphorus

Business & background: United Phosphorus manufactures, distributes and exports off-patent agrochemicals. It also produces phosphorus and phosphorus-based compounds.

Prospects: According to a Emkay report, UPL reported Q1FY17 result after consolidating for Advanta and adjusting for the impact of Ind-AS. Consolidated revenues have increased by 7 per cent YoY to Rs 3,510 crore but were below estimates (after adjusting for Advanta) due to 20 per cent YoY decline in Advanta revenues while agrochemical segment posted 10 per cent YoY growth lower than our estimate of 12 per cent, it said. “Given its strong product portfolio and global leadership in generic space, UPL remains a sustained performer. We have readjusted our financial estimates to factor impact of Ind-AS and Advanta merger and hence marginally lower our FY17/18 EPS by 8 per cent/3 per cent as we factor 18 per cent equity dilution on merger, ” it added.

Valuation: At Friday’s close, the stock traded at 40.91 times the EPS for the past four quarters.

3) Company review: Dhanuka Agritech

Business & background: Dhanuka Agritech produces a wi­de range of agrochemicals like herbicides, insecticides, fu­n­g­icides and plant growth regulators in various forms.

Prospects: According to a report by Crisil, Dhanuka Agritech’s Q1FY17 earnings were below expectations. Revenue increased 10 per cent YoY and 9 per cent QoQ. Ebitda margin exp­a­nded by 56 basis points YoY, but do­wn 284 basis points QoQ to 14.4 per cent. Adjusted PAT increased 4 per cent YoY, but down 24 per cent QoQ. “We had assigned a fundamental grade of 4/5 (superior fundamentals) and fair value of Rs 650 per share. We are reviewing results in detail and will release an update after discussions with management. The outstanding fundamental grade and fair value may undergo a revision in the update,” it added.

Valuation: At Friday’s close, the stock traded at 31.20 times the EPS for the past four quarters.

4) Company review: Bayer Cropscience

Business & background: Bayer CropScience is involved in the areas of crop protection, non-agri pest control, seeds and plant biotechnology.

Prospects: According to a research report by East India Securities, overall performance of the company was encouraging after poor monsoon condition prevailing in country during last two rainy seasons. Here onwards on the back of a good mon­soon, the second qu­arter numbers shou­ld improve. Two po­or monsoons had led to higher chan­nel inventory acco­m­p­a­n­ied by heavy com­p­e­tition in the gen­eric business, it said. “We have revised our sales/ Ebitda/PAT estimates for FY17 /FY18. We expect BCS to post CAGR of 16 per cent in reve­nue and 23 per cent growth in PAT over FY16-18E,” it said.

Valuation: At Friday’s close, the stock traded at 53.61 times the EPS for the past four quarters.

(Compiled by Shishir Parasher)


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