Agrochemical sector revenue to grow 12-14 pc in FY21: Report

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November 10, 2020 4:36 PM

Working capital levels are expected to remain largely stable despite a slight stretch in receivables given that exports have a longer credit period.

Crisil Ratings said about 65 per cent of agrochemicals demand is derived from kharif (summer) season.

The agrochemical sector’s revenue is likely to grow 12-14 per cent in the ongoing financial year due to a sharp recovery in offtake from domestic agriculture sector and continuing healthy exports, according to a report.

Domestic revenue, which accounts for almost half of the sector’s revenue, will grow at 10-12 per cent this fiscal as compared with 6-8 per cent growth last fiscal, Crisil Ratings said in a report.

The revenue of the Rs 47,000-crore agrochemical sector is expected to grow at 12-14 per cent this financial year, following a sharp recovery in offtake from domestic agriculture sector and continuing healthy exports, Crisil Ratings said.

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

Revenue from exports, which rose 15 per cent in last fiscal, is expected to maintain its pace at 13-15 per cent this fiscal, the report added.

Crisil Ratings said about 65 per cent of agrochemicals demand is derived from kharif (summer) season.

An above-average and well-spread monsoon in the first half of the current financial year has led to an increase in kharif sowing area to a five-fiscal high at 1,116 lakh hectares which could help the output by 6-7 per cent this fiscal, it added.

Besides, the present water reservoir level, which is at 87 per cent of capacity, will ensure a healthy increase in acreage in the forthcoming rabi (winter) season as well.

Hence, it is likely that overall food grain production in fiscal 2021 may exceed the initial target set by the government at 3,000 lakh tonnes, the report said.

Exports of agrochemicals should maintain last fiscal’s momentum, supported by healthy demand from the United States and Latin America (42 per cent 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, it added.

Meanwhile, 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 to 14 per cent 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.

“We expect the credit outlook to be positive for agrochemicals players due to healthy business performance and further strengthening of credit metrics this fiscal,” Crisil Ratings Associate Director Rajeswari Karthigeyan added.

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