Food companies to gain as monsoon, drought maul farms

Food companies to gain as monsoon, drought maul farms
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First Published: Fri, Sep 04 2009. 03 09 PM IST
Updated: Fri, Sep 04 2009. 03 09 PM IST
Mumbai: Ironically, in a year spotty rains and drought across 278 of India’s 626 districts cuts output and pushes up food prices in the world’s second fastest growing major economy, food companies stand to profit the maximum.
Sugar firms, grain suppliers, breweries and diversified agri businesses will see their fortunes rising in FY10 as prices of key commodities soar, analysts said.
Brokerages have upgraded FY10 profit estimates for sugar firms, Tata Tea, rice producer Lakshmi Energy and Foods and the diversified Jain Irrigation Systems , among others.
“Realisations will definitely rise due to higher commodity prices,” Ajay Parmar, head of research at Emkay Share and Stock Brokers said. “If prices are higher, earnings per unit will grow too.”
Jain Irrigation is a favourite of brokerages with its micro-irrigation segment and fruit processing businesses seen posting 20-30% growth on year on higher demand.
Nomura Equity, which upgraded rating on Jain to ‘buy’ last month, sees orders from state governments for its irrigation business from the second half of FY10 and continue into FY11.
“Jain will be a major beneficiary of the drought,” said Sageraj Bariya of Angel Broking, which has ‘accumulate´ on the stock. “Its fruit division has been performing very good. We might re-rate it upwards depending upon the Q3 results.”
Sugar stocks are also winners, with refineries that imported raw sugar cheaper standing to make a killing.
Paddy and sugarcane crops are the hardest hit by this year’s rains, which are running about a quarter below normal this year.
Rice producer Lakshmi Energy, which won an export order worth Rs300 crore in mid-June for a premium variety, PUSA-1121, is set to gain too, analysts said.
“Their margin is definitely going to expand and that will be due to the pricing and volume growth after they changed their product mix to produce more PUSA grade rice,” Sangeetha Saranathan, analyst with India Infoline, said.
A global surge that saw tea prices up a third in India will help shore up profits of Tata Tea, McLeod Russel and Harrisons Malayalam.
“Margins for Tata Tea is likely to expand as it is in marketing and packaging of tea, so there’s scope it can benefit from the price rise,” Neha Pathak, an analyst with KR Choksey, which has a ‘buy´ rating on Tata Tea, said.
Edible oils, which missed the rally with its agri-peers, too stand to gain later in the year because of cheaper imports that account for almost half the country’s consumption.
“Domestic edible oil demand is rising every year. We can see upside in prices in 2009 due to festival demand and poor kharif crop,” said an analyst at Angel Commodities Broking Pvt Ltd.
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First Published: Fri, Sep 04 2009. 03 09 PM IST
More Topics: Food | Commodities | Monsoon | Drought | Irrigation |