India’s agrochemical sector grapples with a sharp 30% drop in crop prices and a substantial 40% rise in raw material costs. Concurrently, global influences, including increasing crude oil prices and a surge in exports from China, exacerbate the sector’s difficulties. Jefferies, a prominent global brokerage firm, has expressed reservations about the likelihood of a swift rebound in the agrochemical cycle.
Wheat prices have plunged by a significant 60% from their previous peaks, while maize and soybean prices have also witnessed substantial declines of 45% and 25% respectively. This tumultuous scenario stems from several factors, including unprecedented wheat exports from Russia, substantial grain shipments from Ukraine, and a record maize production in Brazil due to favorable weather conditions.
Crop Price Plunge and Raw Material Cost Surge
Furthermore, OPEC+ countries’ oil production cuts have contributed to escalating input costs. Saudi Arabia and Russia have voluntarily curtailed crude oil production until December 2023, aggravating the ongoing oil market shortages. Additionally, input expenditures like fertilizers have surged, with urea prices witnessing a considerable 40% hike since June 2023. China’s export ban on urea and Russia’s reduction in fertilizer export discounts have further added to the challenges.
The Indian government is seeking assistance from foreign experts to accurately estimate the overall logistics cost, given the complex situation. This predicament is anticipated to impact the profitability of companies in the sector. Analysts Bhaskar Chakraborty and Neeraj Todi from Jefferies have emphasized the adverse effects of falling crop prices and rising input costs on profits. Moreover, the high export targets set by the Chinese government for agrochemical products have compounded the woes of Indian companies.
Limited Hope for Swift Recovery in Agrochemical Cycle
Jefferies has expressed concerns about the potential impact of increased Chinese exports on prices and the resulting risks for Indian chemicals companies. Consequently, caution has been advised, particularly as the valuation of chemical companies is surpassing historical averages. Additionally, the sector is grappling with the repercussions of rising oil prices due to supply cuts, with oil prices experiencing a consistent increase over three consecutive weeks.
In light of these challenges, Jefferies has outlined recommended stocks and their respective targets to guide investors in navigating this intricate landscape. Anupam Rasayan’s target price has been set at Rs 860, reflecting an 8.5% decrease from the current market price. SRF is targeted at Rs 2,000, signifying a 15% decline from the present level.
Navin Fluorine’s target price stands at Rs 5,475, indicating a promising 22% upside from the existing market price. PI Industries’ target price is set at Rs 4,430, projecting a 23% increase from the current level. Lastly, UPL has a target price of Rs 800, underscoring a significant 27% upside from the present market price.
