The dramatic recovery in the monsoon has come as a pleasant surprise. After a delay in the onset, the year recorded surplus rainfall by the end of the season. The recovery brought respite to stakeholders of companies dependent on the rural sector. This was reflected in the 9-10% rise in share prices of notable agricultural input providers such as Coromandel International Ltd and Rallis India Ltd, in the last two months.

Still, the recent gains notwithstanding, the stocks are more or less at similar levels compared to the year-ago levels. The caution underscores the lacklustre underlying demand. Farmers reduced the use of agrochemical sprays owing to the delay in sowing and excess rainfall in some parts of the country, said analysts. Further, low pest infestation in key crops means demand for agrochemicals will be relatively lower. And, an uneven distribution in rainfall and a shift to shorter duration crops weighed on sales.

With the monsoon gathering pace and crop acreage improving, the second quarter is expected to see heightened sales. But the benefit may not be huge, warned analysts. “Lower pest infestation recorded in paddy and cotton crops during the kharif season has resulted in lower use of agrochemicals. The domestic agrochemical industry is likely to post modest performance during the quarter," analysts at Antique Stock Broking Ltd said in a note.

Channel checks by analysts at Edelweiss Securities Ltd echoed similar views. “Kharif season has remained tepid for agriculture-input consumption. Fertilizer volume has contracted in light of soft demand," they said in a note. According to the brokerage firm, total fertilizer sales fell 4% in August from a year ago. This comes on the back of 2.9% decline in July.

The improvement in overall crop acreage towards the end of the season, which is now similar to the year-ago levels, can aid fertilizer sales.

Even so, expectations are muted. Excess rains mean crop yields may get impacted, warned distributors. The first Advanced Estimates of production of major kharif crops by the government reflect the concerns. Compared to last year, foodgrain production is projected to see a marginal fall (0.8%), while pulses are estimated to see a notable decline (4%).

“Overall, impacted by late monsoon and excessive rains from July, food-grain production, too, is expected to be lower," said analysts at Edelweiss Securities.

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