The 2016 agro push

Signifigant present and upcoming events-

  1. Back to back droughts in india in the CY14 and 15.

  2. BJP’s major electoral defeat in largely agrarian Bihar.

  3. Congress 's victory in rural areas in Gujrat local body elections.

  4. Upcoming state elections in WB, TN, Kerela and Assam.

  5. The 2017 UP elections.

  6. BJP’s political compulsions given their thin numbers in Rajya Sabha and their desperate need for creeping in acquisition in RS!!!

The Post Continues…

Extreemly sorry for the incomplete post. Completing it here…

  1. Quoting a few articles from money control and business standard…

  2. Maximum number of farmer suicides in India in 2015 in India’s recent history.

  3. The importance attached to rural economy considering it is the largest employer of our work force.

  4. Weakning of El Nino in 2016 and hence the expectation of normal monsoons/ summer rains in India,US and Brazil ( which are most important export markets for agro chemicals and hybrid seeds )

All these factors point towards-

  1. Increased agri spending by govt in 2016.

  2. Greater rural incomes and hence spending on agri Inputs.

  3. Signifigant improvement in demand for agro input manufacturers.

Hence it would be prudent to look at some of these companies that stand to gain the max from the above mentioned events. These to my mind include–

Insecticides India
PI industries
Deepak Fert( plus the added gas supply and pricing related triggers)
Coromandel International

Adding to the argument is the fact that these stocks (except maybe PI industries) have seen signifigant corrections due to monsoon failures in India and Brazil.

Disc: Invested in UPL


I agree with @ranvir. I feel this budget may see major focus on rural spending push from the government. The beneficiaries of this push would not only be seeds, fertilizers, micro-irrigation companies but also tractor companies, FMCG companies and NBFC companies having more focus of rural areas and anybody else having majority of sales coming from rural India a.k.a. Bharat.

Now each of the companies would have their own set of problems to deal with, due to which they are struggling to grow. (For eg - Kaveri Seeds,Jain Irrigation, Rallis) So it would be naive to assume that all of them would do well. But surely it would would throw up some winners.

I invite fellow valuepickrs to brainstorm which companies they feel would benefit the most by the increased rural spending, if it happens…

govt has taken an initiative of issuing soil health cards to farmers. the idea is to educate the farmers regarding the quality of soil and choose the right fertilisers. Farmers in india have been mostly using Urea due to cheap prices / higher subsidy , this has led to distortion of NPK ratio of soil and low fertility.
Also the receivables of fertiliser companies have increased due to non / delayed payment by govt. The reason for same is under provisioning of fertiliser subsidies in the budget.
These things cannot go on for long and the sector is likely to suffer.

so if the govt brings in some good policies and support for the sector i think good fertiliser companies making NPK fertilisers may benefit.
However its very difficult to rely on the govt actions , it might take a long wait.

Hi Manish,

My understanding of the situation is that the subsidy transfer to manufacturers is delayed due to under provisioning by the government. However, it is not denied…it just takes extra time.

Because of this, the receivables of most fertilizer companies go up, working capital is streached and the resultant interest costs go up which finally dents the NP. To that extent one needs to be careful.

However a little bit of extra work of factoring in these payment delays can throw up some really interesting stock ideas.

For example…Coromandel International…it has superb return ratios even when it is operating in a dirty and semi government regulated sector. Its RONW has been in excess if 15% even in drought years. And in good years it has been in excess of a whopping 30%.

So, if 2016 is one of those good years…as we have been trying to predict (although it is hazardous ), Coromandel’s EPS, RoE and RONW could fly. Moreover, 30-35% of its OP comes from completly deregulated products.

Another Company-Rallis, has had bad last 15 months due to back 2 back rainfall deficiency, not only in India but also Brazil-its only significant export market (As both are adversely affected by El-Nino). So with all scientists predicting ( again hazardous ) a weakening El-Nino in 2016, Rallis should also have a good 2016.

That is how I am thinking about the whole situation. Views from fellows are required to further substantiate the real picture.


1 Like

Excellent insight that 2016 would see a huge agriculture push by modi govt be it in irrigation,rural infrastructure,higher yield generation,productivity,river water linking ,rural electrification,better targeted subsidies.This should see the first big splash in this budget.Now which is the best co to play the agri space in india is the que we must answer and then stock up .

Over and above Rallis and Coromandel International…the two that can expect a big bounce back in 2016…another one is Insecticides India.

It has a impeccable track record of over 10 yrs with more than descent return ratios. This year, results of all the three companies are strikingly similar…de-growing by 10-20 % due to deficient rains.

This clearly shows that there are no problems with the companies as such…its the El-Nino that is the culprit.

What more do we need…good companies facing short term but solvable problems…a happy hunting ground for Investors.

Here is a well researched report on Insecticides India by Phillips capital-

Here is another one throwing some light on management pedigee-

1 Like

Hi Ranvir,
While I was going through numbers, Operational cash flows are no where close to NP for last 5 years, reflecting higher working capital requirement. To fund working capital they are piling on debt which has increased from 40 crs to 300 crs now. We need to keep these in perspective while analysing this co.
Disc: Not invested

A great business is bought in troubles to make it a multi-bagger. Timing is everything, so why forget Kaveri Seeds and Aeries Agro

Philip Capital report on agriculture as part of Indian economy as way forward. Title "A meeting with Delhi ministries. "

Agriculture: Current government is of the view that higher MSPs alone cannot give relief to
farmers or address deficiency in productivity and output. To bridge production gaps, it
endeavours to look beyond MSPs and focus on adoption of technology, infrastructure
development, institutional reforms (amendments to land‐lease laws and market pricing for
agricultural produce), and thrust on efficiency (less water usage and judicious use of
fertilisers). Government intends to:
• Introduce land‐lease agreements that allow owners to retain their titles and earn rent
on their land, but which also incentivise tenants to make investments. To make all this
possible, digitalising all land records and giving landowners indefeasible titles is
• An amendment to the APMC Act is a must; if not resolved by the states, this subject can
be brought under the concurrent list.
• Overcoming resistance to GM crops is possible through introducing GM seeds of widely
consumed agri commodities where India’s production is deficient (such as pulses and

@vikskukreja…Yes u r right…WC and debt are the two significant concerns.

Expansion in WC is also due to poor monsoons in the last two years. It is sector wide phenomenon. The other reason in the expansion undertaken by the company in Dahej…which has also resulted in piling up of debt.

Both these things should start to moderate hence forth.

The promoters have also gone in for a QIP…to reduce debt and hence reduce interest outgo…which should make the balance sheet go cleaner.

Disc: Bought UPL and Godrej Industries in today’s fall.

Increased my stake in UPL. GI is a fresh buy.

Noteworthy: GI’s subsidiary- Godrej Agrovet is a signifigant agro player with presence in Animal Feeds, Palm Oil, Diary Products and Agrochemicals.

Also wanted to buy Coromandel International but ran out of money.

Another strong candidate in the sector is Dhanuka Agritech ( A detailed thread on the same already exists).

Especially after the recent stock market correction, all stocks are looking super attractive. Not that they can not become more attractive.

But I am already salivating at the current valuations.

One of the important push is also on adequate use of water for irrigation. So companies in drip pipe space should also do well. I believe Jain irrigation is one of the big players in this space. But any other small players who are focused in this space?

There is another focus on efficient water pumps and solar powered pumps. Any company in that space?

The Agro Push has finally come ( Today’s Budget).

I think we should now scramble to find some bargains in this space.

I think small mortgage sector has lot to cheer. Declining bond yields, push for housing, doubling of farm income etc.

Disc: Hold Repco in this space

Coromondal International is in the business where subsidy from government plays an important part and we have seen in the past that most of the times the subsidies are never paid on time resulting in high working capital for most of these firms. Plus in sequence of chain fertilizers/nutrients are most probably last ones to be put in and depending upon the situation a farmer may or may not decide to put in or put less.

The best ways to play agri push is seeds (hybrid seeds - find a player where there is enough diversification and not like kaveri seeds which is depending on single product cotton seeds) and pesticides.

Personally I am long on bayer crop science for last 2 yrs or so and happy holding it for long time to come.

After the ARUN JAITLEY’s push in the budget, the IMD has come up with bullish monsoon predictions.
Cheers !!!

CONFERENCE CALL - from Capital Markets

Phosphatic fertilizers inventory situation for industry continues to remain at elevated levels

Coromandel International had conference call to discuss the result for the quarter and year ended March 2016. Top mgmt addressed the call.


  • The mgmt said that FY16 was challenging year for Indian agri, as 2 consecutive EL Nino effect. There was kharif shortfall of 14% and rabi of 23%. Due to poor monsoon, reservoir across county is low. South and west impacted more. For FY17, IMB and Skymet has predicted normal monsoon.

  • The consolidated top-line for March 2016 quarter has increased by 1% to Rs 3020.9 crore. The net profit has increased by 34% to Rs 92.7 crore.

  • Uninterrupted availability of phosphoric acid led to a higher share of manufactured fertilizers (94% vs. 89% QoQ). Consequently, gross margins were strong

  • Subsidy business share is 86% at top- line Q4 and 84% in FY16, while at EBIDTA level, subsidy business share share is 64% in Q4, and 66% in FY16

  • Inventory situation continues to remain at elevated levels on the back of weak demand. As of 31st March 2016 inventory of phosphatic fertilizers in the system stood at 6 mn MT comprising of 3.5 mn MT of DAP and 2.5 mn MT of complex fertilizer. Also, out of the 6 mn MT, north region holds the maximum inventory of 4 mn MT while only 2 mn MT is present in the south region.

  • The mgmt said that If the monsoon received is normal especially in the southern region, the excess inventory could get liquidated sooner than expected

  • The company’s phosphatic fertilizer volumes stood at 0.68 mn MT (+5%yoy) in Q4 while it remained flat at 2.3 mn MT in FY16. The mgmtt remains confident of recording healthy volume growth in FY17.

  • In crop protection, the domestic formulation business faced challenging demand environment during the quarter as well as full year. However, this was offset by increase in exports of technical such as mancozeb and acephate where volumes increased by~40%. Higher exports has also helped in improving realizations and margins for this segment. For Q4, revenue and EBITDA contribution of crop protection stood at 14% and 36% respectively. The management remains focused on increasing the contribution from this segment by continuously launching at least two new products each year for next couple of years

  • The company continues to improve its market share in key markets of AP and Telangana from 59% in FY15 to 60% FY16. It has also improved is position in other states such as Tamil Nadu, West Bengal, Madhya Pradesh and Chattisgarh. However, company saw lost some market share in Maharashtra as it opted out of co-marketing of certain products and also in Karnataka due to low ground water level. New product launches and increasing share of unique grade products will aid in further improvement in market share once monsoon normalizes.

  • The subsidy stood at Rs 2017 crore against Rs 1580 crore in Q3 FY16. Out of Rs 2017 crore, Rs 950 crore is old subsidy.

  • Contracts for phosphoric acid for Q1FY17 have not been signed as negotiation on prices continues.

  • SSP volume improved in Q4. The company maintained market share. Introduced new grade SSP. SSP has low margin at present. The company faces competition from organized players and poor monsoon, which impacted SSP margin The company will improved margin gng fwd.

  • Retail business saw significant improvement in operating performance. Non fertilizer business share improved in retail outlet.

  • Fertilizer EBIDTA improved in Q4 due to increase in manufactured fertilizer and fall in volume of traded fertilizer.

  • Drop in market in India is due to drop in DAP import, which is as per strategy due to low demand. Also, the company has existed from the markets where it has low margin.

  • The company expects improvement in its capacity utilization. This year, it stood at 70% even in the adverse market situation. The mgmt target is to improved capacity utilization beyond 85%.

  • Outlook for crop protection market - will sustain growth and volume

Rallis India

Dahej should see commercial operations from FY’17 onwards

The company held its analyst meet on 27th April 2016 and was addressed by Mr. V Shankar MD

Key Highlights

  • FY’16 was a very challenging year for the company. The year was marked by a back to back drought which rarely happens in India.

  • Kharif monsoon was down by 12% in FY’15 and 14% in FY’16. Cumulative monsoon was lower by around 33% in FY’15 and by around 20% in FY’16 in India.

  • Some of the key States like Maharashtra, UP, Karnataka, Andhra & Telangana etc saw rainfalls lower by around 26%, 46%, 20% and 8% respectively in FY’16.

  • This has a back to back effect on rural income and economy and that’s why Rural India is struggling.

  • Water reserves in major reservoirs have come down significantly in these 2 years.

  • Further, the prices of cotton, paddy, rice etc are not rising to that extent even thought the production is lower. Whatever rise that we are seeing, ultimately the farmers are not making money out of it.

  • All these have led to lower Agrochemical business for India and for worldwide as well. Worldwide, agrochemical saw a de-growth of 9% on YoY basis.

  • As per the management, fruits and vegetables, is the only section of eatables, which has shown a steady increase in prices and demand as well, and farmers also benefitted out of it to a certain extent in India.

  • As far as Rallis is concerned, exports were lower by around 20% and reached around Rs 400 crore of turnover in FY’16. Exports constitute around 30% of turnover. Brazil which is the main market for agrochemicals for the company was lower by more than 30% YoY.

  • Domestically, as per the management, more or less, they have held on the market share.

  • Of the total sales of FY’16, Crop Protection business was around 70% and Non Pesticide business was around 30%. Of this crop protection business, insecticides which accounted for around 75% of sales now accounts for around 55%, while fungicides and herbicides which is the fastest growing segment now accounts for 45% of total sales.

  • During the Mar’16 quarter, the company completed the 100% acquisition of Metahelix. Total consideration paid for the acquisition over past 5 years stood at around Rs 240 crore. Metahelix reported net sales of around Rs 334 crore up by around 8% YoY. Paddy and Millet constitute major chunk of seeds business for Metahelix while cotton and vegetables share is improving.

  • Although Metahelix margins currently are lower than Rallis standalone margins which are hovering around 17%, Metahelix will soon reach those margins.

  • In Mar’16 quarter, there was a small proceeds from sale of land which was received and booked in other income.

  • Further in Mar’16, depreciation policy on technical life of each component have been reassessed and realigned with the latest Accounting standard and company law, which resulted in lower depreciation. Going forward FY’16 deprecation forms a base for the company on which further depreciation will be calculated.

  • Also tax rate for the company came lower in Mar’16 quarter and for whole FY’16 year. Dahej plant did some pilot run activities for 2 molecules which its been allocated from 2 MNC companies. Also there was an increase in R&D activities in Dahej. Further activities of Dahej plant will increase and this will result in lower overall tax rate for the company going forward.

  • Dahej finally received contracts from 2 MNC companies to do some pilot testing and running. Management is confident of ensuring the commercial production of Dahej in FY’17 mostly in H2 FY’17. The company has received all the regulatory approvals for the same.

  • The company is nearly a debt free company and working capital has improved significantly. As of now it has no plans on surplus cash that will accrue in next couple of years. It has options on organic and inorganic growth as well as giving back to the shareholders.

  • There will be a land sale deal which is almost through and sum of around Rs 100 crore will flow to the company in H1 FY’17.

  • Going forward, Management expects a good FY’17, given the above normal estimate of monsoon by the IMD. Also given lower inventory levels, new products and a lower base, things should improve from hereon.

  • The company had launched around 6 new products in last 12-15 months and another 3 new were planned for FY’17.