Agro Chemicals Q2 Results Preview - Subdued Quarter; Outlook Remains Bleak: Prabhudas Lilladher

Prabhudas Lilladher Report

Our discussions with industry experts and channel partners suggests that, the domestic industry will likely exhibit a subdued performance in Q2 FY24, with growth expected to be in the mid-single to low double digits YoY.

This subdued outlook is primarily attributed to the delayed onset of monsoons, leading to a postponement in crop acreages and subsequently resulting in lower volume off tick.

We expect a modest 5% YoY revenue growth for this period for our coverage universe. While we anticipate a 4% YoY increase in absolute Ebitda for our coverage universe, it is crucial to note that EBITDA margins are likely to face pressure, declining by 20 basis points YoY. This margin strain is a consequence of the price cuts to the tune of 8-10% (particularly for the generics) implemented during the quarter.

That said, we continue to maintain our cautious stance on the sector largely led by-

1. looming fears of El-Nino for the upcoming Rabi season (H2 contributing around 40% of the total revenues);

2. pressure on prices realisations amid a falling raw material cost scenario (particularly generic molecules) and

3. lower water reservoir levels pose a significant concern for the upcoming Rabi season, as it is primarily dependent on adequate water supply.

While, on the exports side lower demand in key geographies coupled with higher inventory pile-up is likely to keep the performance under check in near term for exporters.

We continue to like PI Industries Ltd. in the agrochemical space

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