Analysis of 9 Best Agro Chemicals stocks to buy now

Agro Chemicals

Sector Update

Chinese Agrochem shipments have commenced

During our interaction with industry experts/companies across the Indian agrochemical industry, participants alluded that shipments of raw materials for agrochemicals from China has started albeit at a slower pace. ~2/3rd of the companies we interacted with have seen commencement of exports from Chinese ports starting 15th-20th February, rest are expecting shipments to restart in the next 5-6 days. Logistics movement within China has improved except in 3-4 provinces.

Many plants have also resumed production. March is an equally important month to monitor supplies as factories which are currently up & running may run out of raw materials and eventually shut down if the ancillary unit supplying those raw materials does not resume production. Chlorpyrifos, Glyphosate, Tebuconazole and difenoconazole are seeing short supply and 5-8% increase in price. While the supply chain situation has started to improve, the situation continues to remain watchful in the short term.

We like Dhanuka Agritech (turnaround in domestic agchem ind), Godrej Agrovet (Integrated play on Agri), Sharda Cropchem (likely business turnaround in FY21), Sumitomo Chemicals (strong earnings momentum in FY21 driven by new launches and cross selling opportunities) and UPL (Gaining market share across geographies) at current levels.

COVID poses a threat to both demand and supply of agchem

§ The menace of Coronavirus continues to spread at a rapid pace moving beyond China into Europe, Iran extending even to the Americas. COVID poses a threat to both demand and supply of agrochemicals.

§ Demand for agchem may get impacted due to reduction in animal protein consumption as a result of fear psychosis around COVID (though occurrence of COVID has no direct correlation with animal protein consumption).

§ On the supply of raw material for agrochemicals, there is uncertainty due to temporary stoppage in exports from China since the COVID issue gathered steam. Continued uncertainty on raw material supplies poses a significant business risk for the industry before the start of Kharif season.