Global and domestic factors are turning favorable for agro chemicals industry. The promised hike in minimum support prices, availability of credit to buy agro chemicals and implementation of integrated pest management as a new method of crop protection are all positive for the growth of agro chemicals industry in the next five years, according to analysts.
The global agrochem market is also recovering from a three-year slow down. Globally, sales of crop protection products declined due to various factors, including high distributor inventory in many countries, low pest/ disease pressure, strengthening of the US dollar against local currencies, weak crop prices for all major commodities and weak prices of Glyphosate.
Growing population, declining arable land to feed the resultant population are driving the overall agrochemicals market. Increasing pest concerns and emergence of agrochemicals are expected to drive the demand for agrochemicals in near future. The global market for agro chemicals was valued at USD 207.5 bn in 2014 and expected to reach USD 250.5 bn by 2020 at compounded annual growth rate of 3.2% from 2015-20.
Amidst the positive trends seen in the industry, here is a look at the three key players in this domain-
UPL Ltd (BSE: 512070, NSE: UPL) Category: Large Cap
UPL Ltd was established in 1969 by Raju Shroff in Vapi (GIDC) to produce Red Phosphorous and in 1972 received the President’s Gold Seal for Research and Development. It was the first award of its kind in the small scale industry of India. And over the years, it has emerged a total crop protection company with global operations.
It is aggressively looking at growth in China, Nigeria and Kenya. It is expected to show growth of 12-16% on revenue and earnings in FY17-20 period. Strong earnings potential, robust return ratio of 20-25%, and low leverage and cash of $28 bn are the plus factors for UPL. At a price earnings (PE) of 67, the scrip has higher valuation in the market.
In 2016-17, the company reported 16% growth in revenues and 83,7% growth in net profit. In Q3FY18, net profit rose 26.09% to Rs 579 cr while sales rose 8.80% to Rs 4194 cr. On a returns perspective, it has provided negative returns for quarterly, half year but 4% returns annually. Return on equity of 23.60%,. On assets of 8.63% and net profit margin of 10.58% are on par with industry average.
On technical charts, Relative Strength Index (RSI) of 64.92 indicates bullishness, ADX of 15.94 indicates range bound trading and MACD has witnessed a bullish crossover signaling a buying opportunity.
Target: 810 Duration : 4 weeks
#Rallis India Ltd ( BSE:500355, NSE: RALLIS) Category: Mid Cap
Rallis India Ltd was established in August 1948 with George Euthymopoulo as the Chairman and Managing Director. The company diversified into products such as tractors and Reynolds ballpoint pents, and also began to trade in fertilizers. The company went public in 1951. Rallis India is now a Tata Group enterprise.
The company reported 10% growth in consolidated revenue from operations at Rs 1,783 cr while consolidated profit was 16% up at Rs 170 cr. It had launched the Rallis Samrudh Krishi program covering 12 crops across the country providing end-to-end agri solutions.
The company reported decline of 1.58% in net profit at Rs 24.94 cr in Q3FY18 while sales rose 19.67% to Rs 390.16 cr. It is trading at a PE of 30.27 denoting moderate valuation by market. The company is expected to show 10% annual growth in domestic market from FY18 to FY20. Contribution of seeds (Metahelix) and higher exports will improve the position of the firm and net profit is expected to grow 20%. It ha s healthy return ratio of 20%.
It has provided half yearly returns of 9.92% but annual returns are negative. Return on equity of 26.76%, on assets of 19,97% and net profit margin of 17.72% are above industry average while cash flow and liquidity may be a cause for concern.
On technical charts, RSI of 50.94 indicates neutral trend, while ADX of 23 indicates range bound trading and MACD has witnessed a bullish crossover indicating buying opportunity.
Target: 255 Duration : 4 weeks
#PI Industries Ltd (BSE:523642, NSE: PIIND) Category: Mid Cap
PI Industries Ltd was established in 1946 and its business model covers the agrichem value chain from R&D to distribution providing innovative solutions by partnering with the best. It has built leading brands over the past 6 decades and it ahs 40,000 retail points in India.
The company reported robust growth in revenues in FY17 at Rs 2,382.90 cr as against Rs 2,197.3 cr the previous year while net profit rose to Rs 457.4 cr as against Rs 309.7 cr. Net profit margins also rose from 14.1% to 19.2%.
In Q3FY18, net profit fell 14.17% to Rs 80.65 cr while sales rose 11.89% to Rs 537.74 cr. It is trading at a PE of 31.58 indicating moderate valuation by market. On a returns perspective, 20.58% halfy yearly and 9.69% annually is on par with industry. Return on equity of 28.23%, assets of 20.71%, net profit margin fo 20.17% are on part with industry average while liquidity and cash flow ratios are a cause for concern.
With custom synthesis and manufacturing (CSM) accounting for 70% of the revenue, the company is well poised to gain from global recovery in agro chemicals.
On technical charts, RSI of 64.55 is bullish while ADX of 18.78 is indicative of range bound trade and MACD has witnessed a bullish crossover signaling buying opportunity now.
Target : 980 Duration: 6 weeks.
According to Narayan K Seshadri, Chairman of PI Industries, “agricultural infrastructure and productivity in India has a long way to go. With just 45% of net sown area having irrigation facilities and an estimated 15-25% of potential crop production being lost due to insects, weeds and diseases, the headroom for productivity improvement is immense.”
India is the fourth largest producer of agrochemicals. India’s US $ 4.4 bn (FY15) is expected to grow to US $6.3 bn by FY 20. With increased credit facilities, recovery in global markets, industry-government linkage to provide better facilities to farmers for major crops, India’s agro chemical is well poised for a leap forward in the next five years. Farm loan waivers across states, hike in Minimum Support Prices (MSP) should lead to higher profitability for organized players in the industry. The implementation of Pesticides Management Bill that requires stricter compliance on registration, compensation to farmers may turn favourable for organized players as the unorganized segment stand to lose from such regulatory measures.