Agri input companies report mixed Q2 results amid global slowdown; Dhanuka, Coromandel among top picks by Nuvama

Q2 earnings review: Agri input companies' Q2FY24 results, according to domestic brokerage Nuvama Institutional Equities, were a mixed bag. The robust revival of the monsoon during July and August, according to the brokerage, kept domestic demand steady; channel destocking, on the other hand, significantly hurt global demand. Global players suffered from low demand, which made it difficult to liquidate expensive inventory and resulted in losses (UPL, Sharda).

With a "Buy" rating on Dhanuka, the domestic brokerage is generally still optimistic about domestic agrochem. However, it has downgraded Coromandel to a "Hold" position because it thinks aggressive subsidy cuts might hurt fertiliser players. Although margin pressure is inevitable in the near future, global agrochem offers valuation comfort following the recent correction.

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According to the brokerage, domestic agrochem players saw a rebound in demand in Q2FY24, which followed a weak Q1FY24, thanks to the monsoon's pickup. While realisation was lower year over year, the majority of agrochem players recorded robust volume growth (Dhanuka 20% YoY). 

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Overall revenue decreased, with total sales for our group of domestic players falling 27% year over year; EBITDA, on the other hand, rose 5% year over year. The best performance was reported by Dhanuka (PAT up 39% YoY), exceeding both the brokerage's and the consensus estimates. Rallis India came in second (15% YoY).

According to Nuvama, inventory destocking took place in all regions, which affected the players in the gobal agrochem sector. This unravelled inventory losses, as did a sharp drop in material prices. In order to get payments, companies also provided extra rebates. Because of this, the EBITDA of international players fell 44% YoY, and both Sharda and UPL reported net losses.

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“The situation is likely to remain muted in Q3FY24 as well, but we expect demand scenario to improve from Q4FY24. Demand at the farmer level remains firm though and agri commodity prices are holding up. Meanwhile, following the recent correction in stock prices, the valuation of these players are reasonable in our view. Under our top picks list, we have Dhanuka Agri with ‘BUY’ stance. We downgraded Coromandel to ‘HOLD’ due to near-term pressure on margins," said the brokerage.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.