Steady realisations, stable raw material prices and limited US tariff impact will keep operating margins rangebound this fiscal and the next.

A rebound in exports after two years will drive up the revenue of Indian agrochemical industry 6-7 per cent this fiscal, supported by a favourably timed revival in global demand and normalisation of inventories just as domestic offtake slows due to a protracted monsoon that impacted kharif season sales. The industry’s return to its long-term growth range of 8-10 per cent next fiscal, however, hinges on exports sustaining the momentum and domestic demand picking up, according to latest report by CRISIL.

 The report mentioned that steady realisations, stable raw material prices and limited US tariff impact will keep operating margins rangebound this fiscal and the next. Modest capital expenditure and stable working capital will likely support leverage discipline, helping maintain credit profiles that have been under pressure in recent years.

Crisil’s assessment is based on an analysis of about 60 companies, accounting for nearly 90 per cent of the industry revenue of Rs 90,000 crore, indicates as much. For the record, domestic and export markets each account for almost 50 per cent of the industry revenue.

The industry is seeing a recovery in export growth after two volatile years, driven by stabilising global supply chains and improving demand. Over 65 per cent of the export revenue accrues from Latin America (LATAM; 34 per cent), North America (19 per cent) and Europe (12 per cent). LATAM is seeing modest growth, while Europe is recovering as inventories normalise. The US remains steady, with 80-85 per cent of Indian shipments exempt from tariffs. Besides, India’s position in US trade remains strong, with the US sourcing 70 per cent of its agrochemical needs from China (50 per cent) and India (20 per cent).

Anuj Sethi, Senior Director, Crisil Ratings, said, “Improved farm sentiment globally will drive up export revenue by 8-9 per cent this fiscal. However domestic demand will see the perils of excess rainfall causing crop damage, product returns and delayed field readiness. With realisations stabilising after two years of significant adjustments, the overall growth outlook of 6-7 per cent remains more volume-driven than price-led.”

Domestic agrochemical prices have stabilised as the post-lockdown inventory overhang of China eased. Realisations on agrochemical imports from China have held around USD 5/ kg, broadly in line with last year. And, with inventories now balanced and firmer enforcement of environmental norms ensuring steadier supply flow, realisations are expected to stay steady through the year.

 “Operating margins of agrochemical makers are expected to hold steady at 12.5-13.0 per cent on-year, but still below the pre-pandemic peak of ~15%. This stability comes after a sharp correction in realisations in fiscal 2024 and is supported by better operating leverage, softer input costs and tighter cost controls. Annual investments of ~Rs 5,500 crore in import substitution, new registrations and debottlenecking will continue, while steady cash accruals and disciplined working capital management will keep borrowing needs low”, said Poonam Upadhyay, Director, Crisil Ratings.

For agrochemical players in our portfolio, debt to earnings before interest, tax, depreciation and amortisation (Ebitda) is expected to improve to 1.3 times and interest cover to 7 times this fiscal and the next, from 1.5 times and 6 times, respectively, last fiscal.

Key monitorable include any disruption related to climate change, regulatory tightening and currency movement. Weather shifts are influencing demand patterns, while stricter scrutiny of pesticide use in India and overseas may drive portfolio changes. Currency exchange rate swings in key export markets also pose risks for players with concentrated exposure.