Friday, September 29, 2023

India’s agrichemical industry sees double-digit growth in FY23 and FY24 on strong export momentum, says Crisil

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  • According to research firm Crisil, India’s agrochemical industry is expected to continue growing at double-digit rates.
  • In his latest report, Crisil says that agrichemical industry revenues are estimated to grow by 15-17% in FY23 and 10-12% in FY24 as India continues to benefit from the “China plus one” strategy.
  • Analysts believe that exports will continue to be one of the major factors contributing to the growth of the agrichemical industry going forward, accounting for more than 50% of the industry’s total revenue.
  • Major players in the Indian agrochemical industry include United Phosphorus, PI Industries and Sumitomo Chemical.

According to a report by research firm Crisil, India’s agrichemical sector is set to grow by 15-17% in FY23, driven primarily by strong exports and stable domestic demand. The sector recorded a 23% increase in the fiscal year ending 2022.

According to Crisil, industry revenues will also increase in FY24 – from 10-12% – as India continues to benefit from the “China plus one” strategy of global players and as patents on key molecules expire.

“Export revenues are up 18-20% this fiscal year, with the US dollar up about 9% so far and volume growing as global players continue to reduce their reliance on China. Next fiscal year, exports are likely to grow 12-14% grow as players keep capital expenditures in view of $4 billion molecules going off patent in the next two years,” said Poonam Upadhyay, director at Crisil Ratings.

As a result, exports will continue to be the largest contributor to the agrochemical sector, accounting for about 53% of total revenues, the Crisil report said.

India has been at the forefront of chemicals and agrochemicals for the past decade due to China’s tightening of environmental regulations in 2015 and the subsequent impact on the global chemical supply chain, according to a report from Centrum Institutional Research.

United Phosphorus (UPL) is the largest pesticides and agrochemicals company in India by market capitalization, followed by PI Industries and Sumitomo Chemical.

Top companies in agricultural chemistry Market capitalization YTD % change
UPL ₹55,313 crore -5%
PI industries ₹52,324 crore 13%
Sumitomo Chemistry ₹23,639 crore 21%
Bayer CropScience ₹ 21,862 crore -2%
Fine organic industries ₹17,185 crore 48%
BASF ₹11,974 crore -8%
Rally India ₹4,595 crore -14%
Sharda Cropchem ₹4,103 crore 29%

Source: NSE, as at 3.30pm

Import costs to weigh
While industry growth is expected to be double-digit, according to the Crisil report, high commodity prices are expected to take their toll.

The report says that prices of raw and yellow phosphorus, the most important commodities, increased by 40-45% and 18-22% respectively in the second half of the past fiscal year.

“Continued high prices, despite some moderation recently, will drive gross margins down 90-110 bps. However, higher operating leverage, derived from better cost absorption, will keep total operating margin in this fiscal year at 15-16%, only marginally lower compared to fiscal 2022. Margins are expected to reach a range next fiscal year similar level,” the report said.

Higher operating leverage would help keep operating margins at 15-16% in the current and next fiscal year (16.6% last fiscal year), despite input prices remaining high, according to the Crisil report.

Excess rain in September, favorable weather conditions and the government’s continued focus on improving farm incomes will fuel growth in the domestic segment, which is expected to grow 10-12% in FY23, Crisil said.

Going forward, supply chain disruptions, sharp volatility in commodity prices and the next monsoon season will be key factors that will affect the industry’s growth, Crisil said.

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