Brokerage firm Prabhudas Lilladher believes that export-oriented players, such as PI Industries, Sumitomo Chemicals and UPL, are better placed than pure-play domestic players such as Dhanuka Agritech and Bayer Crop science in the near term.
The brokerage firm explained that the near-term challenges due to provisions for high-cost inventory amid a falling raw material cost scenario, higher sales return from Kharif season, and pricing pressure in generic segments will likely weigh on margins for domestic players.
However, exports oriented players will continue with their outperformance on the back of (a) a robust demand scenario globally, (b) remunerative crop prices, and (c) better realizations led by price hikes in the recent past.
As per the brokerage firm, the sector's growth in the first half of FY23 was largely driven by price, as volumes were under pressure due to adverse weather conditions.
Uneven rainfall distribution resulted in the miss of some sprays, leading to lower liquidation of inventories, particularly in insecticides grades.
However, higher sales return, particularly in the insecticides grade is expected in Q3FY23.
Price hikes in agrochemicals are likely to be absorbed by the market since crop prices continue to be remunerative in both the domestic and exports market.
"The second half usually remains heavier for exporters compared to the first half. Hence, citing the robust demand scenario globally, we continue to maintain our positive stance on exporters and prefer Sumitomo Chemicals, PI Industries and UPL in the agrochemical space, while Coromandel International remains our preferred pick in the fertilizer pack," said Prabhudas Lilladher.
Overall, there are 8 stocks in the agrochemicals space that Prabhudas Lilladher recommends buying. The brokerage has 'accumulate' calls on two stocks - Bayer Cropscience and Godrej Agrovet and has a 'hold' call on one stock - Insecticides India.
Among its buy calls, Prabhudas Lilladher expects Rallis India to clock revenue and PAT CAGR of 15 percent and 18 percent over FY22-FY25E, led by domestic market share gain and export ramp-up.
For Sharda Cropchem, the brokerage firm underscored that the company's management remains confident of achieving 15-20 percent year-on-year (YoY) revenue growth for FY23E, however, adverse currency movement is likely to exert pressure on margins in the near term.
Prabhudas Lilladher expects UPL to clock revenue and PAT CAGR of 11 percent and 17 percent, respectively, over FY22-25E.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
