PI Industries top pick as headwinds persist for agrochemical sector

livemint.com:

Stock market today: Headwinds for earnings prospects of agrochemical manufacturers is posed led by weak demand outlook on the back of lower-than-expected monsoon season in the country impacting Kharif crop acreage. The falling chemical prices globally due to higher supplies from China that have been leading to inventory destocking poses another challenge.

The weaker than expected monsoon that keeps expectations muted for the Kharif season harvest is likely to impact even Rabi season or winter crop sowing as reservoir levels remain low, feel analysts. Not surprisingly the share prices of most agrochemical manufacturers have seen muted performance.

While UPL Ltd is down more than 14% in last months, Rallis India Ltd that had shown some spark rebounding in September however is down more than 7% from September highs. Only PI Industries that has higher portion of patented molecules in its portfolio and strong order book for its custom synthesis segment or contract manufacturing, has seen share price rise more than 15% in last months Analysts such as Swarnendu Bhushan at Prabhudas Lilladher said that we continue to maintain our cautious stance on the sector largely led by looming fears of El-Nino for the upcoming Rabi season.

Second half contributes around 40% to total revenues. Also, pressure on prices and in turn realizations amid a falling raw material cost scenario (particularly generic molecules) is another concern.

The lower water reservoir levels pose a significant concern for the upcoming Rabi season, as per Bhushan as it is primarily dependent on adequate water supply. Also read- Galaxy, PI Ind to continue growth, agrochem cos to face demand pressure: Nuvama The supplies of molecules from China had continued to rise