Agrochemicals Sector Revenue to Grow 7-9% in FY26: Crisil
By Rediff Money Desk, Mumbai Dec 13, 2024 18:05
Crisil forecasts 7-9% revenue growth for the agrochemicals sector in FY26, driven by stable domestic demand and export recovery. However, pricing pressures from Chinese competition remain.
Mumbai, Dec 13 (PTI) The agrochemicals sector's revenue is expected to grow at 7-9 per cent in FY2026, following stable domestic demand and recovery in export volumes, a report said on Friday.
After a modest 5-6 per cent growth in the current fiscal, the agrochemicals sector is poised to grow at 7-9 per cent in the next fiscal, Crisil Ratings said in the report.
The growth will be on the back of stable domestic demand and recovery in export volumes. However, historically low realisations will continue to hinder a return to double-digit growth seen before the Covid-19 pandemic, it added.
Operating margins are also seen to be recovering slowly, rising 100 basis points to 12-13 per cent, still below the pre-pandemic levels of 15-16 per cent, which will keep firms cautious with capital expenditure and focus on managing working capital to maintain their cash flows and balance sheets steady.
"Revenue from exports, which comprises half of the sector's total revenue, is witnessing change. Global firms have largely resolved their excess inventory issues related to low-cost Chinese supplies and are now ordering closer to the cropping season to better manage working capital.
"While we expect healthy volume growth this fiscal, revenue growth will be modest at 3-4 per cent amid pricing pressures from competitively priced Chinese products. In the next fiscal, this may improve to over 7 per cent as these pressures ease," Crisil Ratings Senior Director Anuj Sethi said.
Conversely, domestic revenue is seen rising by 8-9 per cent this fiscal due to good monsoon and adequate reservoir levels, which are boosting agricultural output, the report said.
This is despite continuing pricing pressures from oversupply in China, albeit less severe than last year, the report said, adding that this trend is expected to continue, leading to fewer instances of inventory write offs.
Additionally, with improved volumes, the sector's profitability is expected to improve as well, it added.
"We expect the sector's operating margin to improve slightly to about 12 per cent this fiscal and 13 per cent next year, but ongoing pricing pressures will limit this growth despite higher sales volumes.
"Consequently, most companies will continue to prioritise maintaining healthy balance sheets by managing working capital and limiting capex intensity at less than 1x in each of the next two fiscals," Crisil Ratings Associate Director Naren Kartic K said.
Control over debt and gradual improvement in operating profitability will lead to the sustenance of stable debt protection metrics over the near to medium term, the report said.
However, factors such as Chinese oversupply, adverse weather conditions impacting demand in key geographies, movement in raw material prices and any regulatory changes both in India and overseas will need to be watched.
After a modest 5-6 per cent growth in the current fiscal, the agrochemicals sector is poised to grow at 7-9 per cent in the next fiscal, Crisil Ratings said in the report.
The growth will be on the back of stable domestic demand and recovery in export volumes. However, historically low realisations will continue to hinder a return to double-digit growth seen before the Covid-19 pandemic, it added.
Operating margins are also seen to be recovering slowly, rising 100 basis points to 12-13 per cent, still below the pre-pandemic levels of 15-16 per cent, which will keep firms cautious with capital expenditure and focus on managing working capital to maintain their cash flows and balance sheets steady.
"Revenue from exports, which comprises half of the sector's total revenue, is witnessing change. Global firms have largely resolved their excess inventory issues related to low-cost Chinese supplies and are now ordering closer to the cropping season to better manage working capital.
"While we expect healthy volume growth this fiscal, revenue growth will be modest at 3-4 per cent amid pricing pressures from competitively priced Chinese products. In the next fiscal, this may improve to over 7 per cent as these pressures ease," Crisil Ratings Senior Director Anuj Sethi said.
Conversely, domestic revenue is seen rising by 8-9 per cent this fiscal due to good monsoon and adequate reservoir levels, which are boosting agricultural output, the report said.
This is despite continuing pricing pressures from oversupply in China, albeit less severe than last year, the report said, adding that this trend is expected to continue, leading to fewer instances of inventory write offs.
Additionally, with improved volumes, the sector's profitability is expected to improve as well, it added.
"We expect the sector's operating margin to improve slightly to about 12 per cent this fiscal and 13 per cent next year, but ongoing pricing pressures will limit this growth despite higher sales volumes.
"Consequently, most companies will continue to prioritise maintaining healthy balance sheets by managing working capital and limiting capex intensity at less than 1x in each of the next two fiscals," Crisil Ratings Associate Director Naren Kartic K said.
Control over debt and gradual improvement in operating profitability will lead to the sustenance of stable debt protection metrics over the near to medium term, the report said.
However, factors such as Chinese oversupply, adverse weather conditions impacting demand in key geographies, movement in raw material prices and any regulatory changes both in India and overseas will need to be watched.
Source: PTI
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