IMD hopeful of revival in rainfall: PI Industries, Sumitomo Chemicals shares among top agrichemical picks, says PL

Domestic brokerage Prabhudas Lilladher (PL) recently hosted DS Pai, Scientist and Head climate services division at India Meteorological Department (IMD) to understand the current monsoon trend and the impact of El-Nino in the upcoming season. Pai, PL said, noted that delays in the arrival of monsoon is due to Cyclone Biporjoy, which has resulted in deficient rainfall (down 92 per cent of LPA) in June. IMD remains hopeful of revival in rainfall from the third week of June till mid-July, which would aid in narrowing down of deficient rainfall, the domestic brokerage said.

PL has been cautious on the agrichemical sector but factored in a revenue growth of 9.7 per cent YoY in FY24 against 8.7 per cent growth seen over FY14-16, compounded annually. To recall, FY15 and FY16 were two years of deficit rainfall.

"We continue to maintain our cautious stance on the sector and prefer PI Industries and Sumitomo Chemicals in the agrochemicals space. Coromandel International remains our preferred pick in fertiliser space," the brokerage said.

Historical data suggest El-Nino’s direct relation with food grain production. In the last 38 years, there have been 12 years of EL-Nino. It is observed that there has been no impact of food grain production in case of weak EL-Nino, whereas strong and moderate EL-Nino has resulted in 7 per cent and 10 per cent decline in kharif food grain production.

"For the current year, IMD expects monsoon to be normal at 96 per cent of LPA; however, they have indicated that El-Nino patterns could be developed during mid-monsoon season (August- September) which in-turn will have an impact on food grain production in upcoming kharif season,' PL said.

Prabhudas Lilladher said it maintains a cautious stance on domestic agrochemicals.  It noted that its coverage of domestic agrochemical industry clocked revenue CAGR of 8.7 per cent during FY14-16 as two consecutive years of below normal monsoons (FY15 and FY16) coupled with higher channel inventory and pressure on farm incomes impacted sales in that period.

"Cash-flows were strained and below-normal monsoons led to muted volumes and price cuts across the industry. However, we believe that the pressure this time would not be as severe," it said. 

This is because channel inventory is higher only for insecticides grades while the overall inventory remains at comfortable levels. It said Domestic crop prices continues to be remunerative and that the government's thrust remains on improving farm income;

Besides, it cited expectations of special aid from government to farming community in case of crop damage or losses due to adverse weather conditions, given Lok Sabha elections next year.