The agrochemicals sector is poised to grow at 7-9 per cent in the next fiscal, after a modest 5-6 per cent growth in the current fiscal, stated a report by CRISIL Ratings. While the growth will be on the back of stable domestic demand and recovery in export volumes, CRISIL added, historically low realisations will continue to hinder a return to double-digit growth seen before the Covid-19 pandemic period.
Operating margins are also seen to be recovering slowly, rising by approximately 100 basis points to 12-13 per cent — still below the pre-pandemic levels of 15-16 per cent. This will keep firms cautious with capital expenditure and focus on managing working capital to keep their cash flows and balance sheets steady.
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CRISIL Ratings analysed agrochemicals makers that account for nearly 90 per cent of the sector’s total revenue of around Rs 82,000 crore last fiscal, to release the findings.
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Anuj Sethi, Senior Director, CRISIL Ratings, said, “Revenue from exports, which comprises half of the sector’s total revenue, is witnessing change. Global firms have largely resolved their excess inventory issues related to low-cost Chinese supplies and are now ordering closer to the cropping season to better manage working capital. While we expect healthy volume growth this fiscal, revenue growth will be modest at 3-4 per cent amid pricing pressures from competitively priced Chinese products. In the next fiscal, this may improve to over 7 per cent as these pressures ease.”
Conversely, on the back of good monsoon and adequate reservoir levels which are boosting agricultural output, domestic revenue is seen rising by 8-9 per cent this fiscal. This is despite continuing pricing pressures from oversupply in China, albeit less severe than last year. CRISIL stated that this trend is expected to continue, leading to fewer instances of inventory write-offs.
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