3 agrochemical stocks including Dhanuka Agritech can rally up to 23%

The agrochemical industry in FY24 faced headwinds such as a build-up of high-cost inventory, declining input prices, and higher China supplies, primarily in exports and to a small amount in domestic markets. 

While these headwinds will continue to blow for some time, there are signs of a turnaround and return of order, including volume offtake in technicals, an increase in global agri commodity prices, and maximum liquidation of high-cost inventory, which have provided relief and optimism to manufacturers for better performance in FY25, said global brokerage firm Phillip Capital.

India to emerge as a robust, far-reaching player

The global agrochemicals industry is forecast to experience a steady CAGR of approximately 4.2% from 2024 to 2032, reaching around US$ 135 billion. Herbicides are anticipated to maintain their dominance, with South America emerging as a key consumer region. 

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In contrast, India's agrochemicals market is expected to witness a higher CAGR of 6.0–6.5% by 2027–28, touching US$ 9.8 billion. According to the brokerage, the country's emergence as the second-largest exporter of agrochemicals globally is notable, driven by a surge in exports to key markets such as the USA and Brazil. 

It highlights that the regulatory reforms, technological advancements, and sustainability initiatives will be poised to further propel growth in the Indian agrochemicals landscape.

Off-patent molecules drive affordable crop protection

As per the brokerage analysis, the Off-patent molecules represent a significant opportunity in meeting the escalating demand for agrochemicals, constituting 75% of the global market. 

Despite this vast potential, challenges hinder generic manufacturers' utilisation of these molecules, limiting their adoption. Fungicides and insecticides are preferred within the realm of off-patent molecules, offering benefits such as lower costs and improved safety. 

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Regulatory hurdles pose obstacles to generic manufacturers, emphasising the need for innovative approaches to molecule development, the brokerage added.

Opportunities for India

India stands poised to capitalise on its status as a major exporter of agrochemicals by venturing into new markets and fostering innovation. Joint ventures with international counterparts facilitate technology transfer and bolster distribution networks, enhancing India's competitiveness on the global stage.

Additionally, the brokerage highlights the potential of technologies like drones and precision agriculture to enhance efficiency and lower input costs. However, it emphasizes the challenges of penetrating rural markets, regulatory limitations, and competition from imported agrochemicals.

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Initiates coverage

Dhanuka Agritech: The brokerage believes that the company is well placed to benefit from a return to normalcy in agrochemicals, given its strong product portfolio, new launches every year, and solid distribution network that will help it reach newer markets.

It initiated coverage on the stock with a 'Buy' rating and a target of ₹1,187, which reflects an upside potential of 23% from the stock's previous closing price.

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Rallis India: The brokerage said that the company has been working on new launches to reduce dependence on products such as pendimethalin and metribuzin in an effort to increase crop-care margins. It initiated coverage on the stock with a 'Neutral' rating and a target of ₹270, reflecting an upside rally of 15%. 

Bayer Cropscience: The company has a vast crop-protection portfolio comprising innovative chemicals and biological pest-management solutions. The brokerage remains optimistic about the long-term prospects of the company, however, it says the near-term scenario presents few challenges. It initiates coverage with a 'Neutral' rating at a target of ₹5,435. This target price signals an upside gain of 9%. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.