Good news for agriculture sector:
IMD initial forecast for the rainfall during southwest monsoon season( June to September) likely to be normal (96 to 104% of long period average-LPA).
Quantitively rainfall likely to be 99% of LPA with model error of 5%.
Current models indicates that La Nina conditions are likely to continue during monsoon season.
IMD will issue updated forecast during last week of May2022.
( Note: LPA of season(June-sept) rainfall over the country as a whole for the period 1971-2020 is 868.6mm . This has replaced the earlier normal of 880.6mm based on data of 1960-2010)
Then go through the RHP of India Pesticides Limited for understanding the agrochemical industry. The ipo came last year so the reports are of recent.
Then go for company specific research.
Read few concall transcripts and investor presentations of recent for overall idea, read the annual report,
See the Valuepickr thread of that company (this is very useful and can save a lot of time of reading past 5-6 annual reports and concall (summeries of past annual reports and concall are available there of concalls) because you can know how the company evolved in the past and what it’s doing by reading the posts of the thread).
You can also read brokerage reports (search in google for "xyz analyst report and open the trndyne link) for that company.You will also get initiation report of the brokerage those are really helpful. Just take the facts from there. don’t take valuation from brokerage reports. they are horrible at it. they always give higher price target.
You can also search for the company in twitter.thete might be some threads of that company. (it’s highly likely someone might have posted the Twitter link in valuepcikr thread)
I research in this way. Researching chemical companies are difficult because all companies are different from each other. For starter go for PI industry research. The Valuepickr thread is awesome and lot of contents are there and it can save a lot of time it will take to dig those infos all by yourself.
SOIC hosted Mr Anurag Surana to present his view on the Chemicals sector. Below are the Key takeaways from the call:
The global Agrochemicals active ingredients market is around US$ 60 bn, of which innovators manufacture US$ 20 bn worth of new products. Around US$ 7-9 bn is a agrochemical CDMO/ CSM market. Of the US$ 7-9 bn agrochemical CDMO/ CSM market, China supplies nearly 50% of it and now since the China’s geopolitical scenario is changing, its market share is expected to reduce as customers are looking for alternative suppliers. India is at a strong position as the overall environment is better as compared to China. This will help India grow at 10-15% for the next few years. However, China is now conforming to environmental laws, but going forward upstream products (basic chemicals will be manufactured in China while Downstream (specialty chemicals) will get traction in India and is expected to grow at a faster pace. In India, Deccan Chemicals, SRF Ltd and PI Industries have a cumulative market share of around 10%. However, now there are new companies, which are entering into this segment and have the capabilities to grow at a faster rate. For eg, Navin Fluorine, Deepak Nitrite and Laxmi Organics. There are three drivers that can help innovators gain market share; technical and technological availability, ability to handle complex molecule and customers now prefer suppliers with stringent internal environmental norms, confidentiality of customer and its requirement apart from Non-Disclosure Agreement (NDA) and strict timelines. As all the CDMO and CSM molecules have a multi stage process, customers prefer strategic sourcing and do not easily change the suppliers. Now-a-days, many companies are looking for tollers with technical capabilities, financial soundness, ESG compliant for their long term partnership. Companies who provide innovative offering, like continuous flow chemistry, multi-step processes can provide edge in terms of low product costs while maintaining margins. These companies ideally start with basic chemicals and then have the capabilities to move up the value chain. Once the customers, are comfortable with the suppliers, business is assured, as it is a long term sourcing, however margins are lower, with EBITDA margins at ~20%. In Contract manufacturing, apart from NDA customers also share information and knowledge with the suppliers. This helps suppliers to innovate products and sell it at a lower cost while maintaining margins. The Indian chemical sector has the potential to emerge as a global leader in CRAMS with more than 300 manufacturing sites approved by USFDA. To manufacture good quality drugs and pharmaceuticals through the implementation of Current Good Manufacturing Practise (cGMP) guidelines, India stood in good stead. Owning to this, margins of pharma CRAMS is superior to Agrochemical CRAMS.
The IMD is organizing a series of webinars on weather and climate sciences for the general public. Anyone interested in learning more about these topics, please make use of this opportunity. Though the first day is already over (was today), the recordings are available on YouTube. Next session will be on 15th July and every Friday thereafter till 12th August 2022. The full schedule, topic and YouTube links are given below.
COROMANDEL INTERNATIONAL LTD : Dare Ventures, the venture capital arm of Coromandel International Limited has announced that they have invested in Bengaluru based biotech startup String Bio alongside Woodside Energy Group and existing investors Ankur Capital, Redstart and Zenfold Ventures. The investment was part of the $20 million first close of the Series B fund raise
Besides Bayer, other manufacturers of glyphosate in India include Sumitomo, Adama, Crystal and Rallis among others. Glyphosate sales in India are estimated at around ₹1,000 crore, about a fourth of the herbicide market.
PI Also spoke about Drones in their investor presentations . I think in india the major challenge is the agriculture land is fragmented with small farmers, usage of drones is more effective on a big land area.
In past few years, agrichemical companies focused on exporting technicals have grown very well which has attracted more competition and a lot of companies are putting up large capacities. In FY23 so far, a lot of EC approvals have been granted, with sizes ranging from 100-1500 cr. I am sharing a few excerpts from a recent IIFL report.
From the above 2 figures, we can see 3500 cr.+ of ECs and capex projects. The entire profit pool of the listed agchem universe (ex of PI and UPL is <1000 cr.), so there is a lot of competition coming up for a small profit pie. Either profit pie has to explode or we are going into a supply glut.
Disclosure: Invested in a number of agchem cos (detailed portfolio here)
NATCO PHARMA LTD.: Company informed that that FMC Corporation and FMC Singapore have served a copy of appeal on Natco. The Appeal is against the well-reasoned and clear judgement of the Hon’ble High Court of Delhi dated 19th September, 2022 which enabled Natco to launch its CTPR (Chlorantraniliprole) products.
CTPR is out of patent now, many Indian players are launching CTPR (Best Agrolife is the first one to launch CTPR combinations in the market and many others ), then why still Natco is fighting with FMC ?
Agrochemical inventories at elevated levels after kharif season due to lower demand by erratic rainfall leading to crop damage, low levels of fest infestation and loss of sprays.
Channel checks suggest correction in prices of vegetables and fruits has led to weak demand during Rabi season.
Agrochemical industry faces the risk of sales returns by channel partners or need to compensate channel partners by offering discounts which could impact Q3 margins.
Agrochemical export also impacted due to high channel inventories in Europe, North America and Latin America due to lower than expected demand and supply chain uncertainties.
Ongoing correction in prices of agrochemicals is leading to reluctance among buyers. Ordering from Indian suppliers appears to have slowed for a broad range of products.
Price correction is some of the agrochemicals in last one year in % terms(in China)
Glyphosate corrected by 40%
2,4-D down by 33%
Azoxystrobin reduced by 38%
Tebuconazole down by 57%
Bifenthrin down by 38%
Imidacloprid down by 57%
Outlook for 2023 still looks positive due to remunerative crop prices even after correction, input costs like fertilizers are falling which should help in farmers profitability. Global agrochemical companies are still guiding for health growth in 2023.