HSBC Raises Price Targets For Agro-Chem Players UPL, Dhanuka And PI Industries—Here's Why
The target price for UPL is raised to Rs 680 on the back of a global recovery while it is raised to Rs 5,000 for PI Industries.
The 2024 monsoon season in India has been robust, setting the stage for healthy and broad-based crop sowing after last year’s below-average rainfall. According to the India Meteorological Department (IMD), this year’s monsoon is expected to be 109% of the long-period average, significantly aiding the sowing of key crops, with the exception of cotton.
The improved rainfall has led to an increase in crop sowing areas, though a notable shift has occurred from cotton to pulses and cereals due to lower cotton prices and pest concerns, potentially impacting pesticide demand. However, the rise in rice sowing could help balance the overall demand for agro-inputs.
Q2 Growth Expected to Moderate
Despite these positive developments, HSBC anticipates moderate growth in the agro-input sector for Q2 FY25. Several factors are expected to contribute to this slowdown, including regional disparities in rainfall, the possibility of product returns to companies due to excess placement in Q1, and the shift in crop patterns from pesticide-heavy cotton to less pesticide-dependent crops. As a result, Q2 growth is expected to be below 10% year-on-year.
However, the outlook for the second half of FY25 is more optimistic. Good water storage levels and healthy soil moisture from the monsoon season should support agro-input demand, leading to a recovery in growth. HSBC forecasts around 12% domestic revenue growth for the sector in FY25.
Sector Performance and Stock Forecasts
HSBC notes that companies with significant exposure to the domestic market, such as DAGRI, BYRCS, and RALI, are poised to benefit from the strong monsoon. DAGRI is expected to outperform the sector due to its well-received new product launches and a high share of specialty products. Conversely, UPL and PI Industries, with less domestic market exposure, are less affected by these local trends but are likely to benefit from signs of a global agricultural recovery.
HSBC has updated its price targets for several key players:
Dhanuka Agritech: Target price raised to Rs 2,000, driven by new launches and export opportunities.
Bayer CropScience: Target price lowered to Rs 6,300 due to lower revenue and margin expectations.
UPL: Target price increased to Rs 680 on the back of a global recovery and improved valuation multiples.
PI Industries: Target price raised to Rs 5,000, reflecting strong growth in its core business and expansion in its pharma vertical.
Risks and Opportunities
HSBC highlights several risks that could impact the sector, including erratic rainfall patterns, regulatory changes, and fluctuating global crop prices. On the upside, better-than-expected new product performance and higher market share could drive growth for companies like DAGRI and UPL.
