The monsoon has bought good tidings for the shares of agrochemical companies. As rains gathered pace, shares of Rallis India Ltd and PI Industries Ltd have gained in the past two weeks. To be sure, there is no direct correlation between agrochemical sales and rains. What timely and adequate rains do though is give a fillip to the farmers.

A good monsoon leads to normal sowing. This gives visibility on crop output and induces the farmers to spend more on agrochemicals like insecticides, fungicides and herbicides. Unlike last year, when planting was delayed due to erratic rains, sowing in the current season is reportedly progressing well.

On 14 June, sowing crossed 7.5 million hectares, the agriculture ministry says. Normal sowing would usually have improved the sales outlook for all agriculture inputs providers. But unlike fertilizer firms, agrochemical companies are not facing problems like excess channel inventories. Inventories were high in 2012. Production discipline by companies has lowered them. A channel check by analysts at Edelweiss Securities Ltd in Maharashtra found inventories at distributors and retailers had reached normal levels. Inventories were twice the normal levels around this time last fiscal year, says the securities house.

A preliminary survey of some agrochemical companies by Sharekhan Ltd, meanwhile, shows the timely rains have kick-started agrochemical sales on a healthy note. “Sales from dealer shelves have been quite good as planting of kharif crops progresses in all states of the country. We have talked to a few agro-chemical manufacturers who believe that the inventory levels are diminishing on the back of a healthy demand which will also improve their revenue and cash flows in H1FY2014," Sharekhan Ltd said in a note.

Usually, agrochemicals sales gain momentum from mid-July. But with rains coming early in some parts of the country this year, Sharekhan expects sales to pick up from June. Also, according to the broking firm, the recent floods in the northern parts of the country may have limited impact on sales as these areas have higher acreage of pulses, which contribute only 5% of the total sales of agrochemicals firms.

Overall, 2013-14 is promising to be a better year for these companies. Both Rallis India and PI Industries are expected to better last year’s performance. Rallis India, which is focussing more on seeds, is expected to benefit the most as high crop acreage can increase demand.

With southern and western India (where the company has a wide presence) receiving good rains, analysts expect Rallis India to report more than 15% sales growth in the current fiscal year. PI Industries, which increased its revenue from the domestic agriculture inputs business by a modest 11% in the last financial year, is expecting to grow by 20% this year.

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