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Good monsoon brings cheers for agribusiness companies

The sluggish agricultural growth in past two years due to deficient monsoon has led to decline in agribusiness industries. However, the good monsoon rainfall in 2016-17 has improved the sales projections. MOHD MUSTAQUIM reports
Good monsoon brings cheers for agribusiness companies

The decline in agricultural productivity in past two years has manifested in loss of business for various industries that are dependent on agriculture and allied activities- such as fertilisers and pesticides, seeds, farm machinery, irrigation equipment and food processing among various others. However, the bountiful monsoon in 2016-17 has improved the sales projections of most of these industries.

In 2012-13, the annual foodgrain production was 258 million tonnes. Due to a 4.2 percent growth in 2013-14, the foodgrain production increased to 265 million tonnes. In 2014-15, in a result of 12 percent deficit in monsoon rains, the production slipped to 252 million tonnes. In 2015-16, the rainfall deficit worsened and increased to 14 percent, but due to some urgent contingency measures taken by the government, the foodgrain production was slightly improved to 253 million tonnes. As the year 2016-17 has seen a bountiful monsoon rains, according to the advance estimates of the Ministry of Agriculture of Farmers Welfare, the foodgrain production is expected to be 270 million tonnes.

Failure of monsoon has a huge impact on the lives of Indian farmers who relies on a good produce to make a living, and to repay the debts incurred in the process. At the same time, by improvements in farmers’ income, the purchasing power in rural India improves. Good monsoon has raised hopes for 2016-17 to be a productive year, both for the farmer and for the industry, providing the sector the much needed impetus for growth.

According to a recently released Assocham study, a large part of corporate India with direct connect with the agro and the entire rural economy is set to post handsome growth in the coming two quarters.

AGROCHEMICAL SECTOR

The agrochemical sector forms the very core of agriculture, right from the time of sowing, till the time of harvesting. Rallis India, a subsidiary of Tata Group, offers seeds and products falling under the agrochemicals category. During a typical good monsoon year 2013-14, the firm registered a 14.65 percent increase in sales. 2014-15 saw a dip in sales by 8 percent. Positive monsoon for 2016 is predicted to generate 33.58 percent higher sales during the monsoon months. The company has already reported a profit of 174.20 crores for its first quarter of 2016-17, implying a 55 percent increase in sales.

Coromandel International, the fertiliser company has shown a steady growth since the past few years. Slashing down of retail prices of non-urea fertilisers by the government has impacted the company’s business. A major fraction of company sales comes from non-urea fertilisers of which ammonium phosphate based fertilisers accounted for 35 percent of the total sale during in 2015-16. As a result of good monsoon, the company is expected to see a rise in the sales for the year 2016-17. Figures indicate a rise in sales by 5.13 percent for the period Mar 16 – Sep 16, and a 19.82 percent for the period Sep 16 – Mar 17.

Agrochemicals make up nearly 85 percent of the total sales of United Phosphorus, an agrochemicals, hybrid seeds, and industrial chemicals business company. The agrochemical sale has been on an upward curve since past few years. The company reported a net profit of Rs 595.44 crore in quarter, ending March 2016. Trends indicate a 17-18 percent growth in the first half of 2016-17 in wake of good monsoon that are bound to lead to an increase in demand for agri inputs.

SEED INDUSTRY

Accounting for nearly 4.4 percent of the global seeds market, Indian seed industry is the 5th largest in the world. Promotion of hybrid seeds and genetically tweaked varieties are helping farmers earn a better livelihood. The good monsoon has given the ever growing market for these high quality seeds.

Trends show that maximum sales for Bayer Crop Science, operating in the seed as well as in the agrochemical sector, have occurred during the period encompassing monsoon months. Anticipation of a good monsoon has shown hopes of a good kharif and rabi produce, thus enhancing the prospects of a good business for Bayer. According to the Assocham study, the sale is expected to rise from 100.78 percent during Mar-Sep 2015 to 107.98 percent or more during Mar-Sep 2016.

For another seeds and agrochemical major Monsanto, seeds contributed to 62.50 percent and agrochemicals contributed 36.58 percent of the total sales in March 2015-16 in Indian market. A comparison of past three years indicates a reduction in sales 2013 onwards. Due to the good monsoon this year, the growth in sales compared to previous term is expected to hover around 28 percent or more during the current financial year. In a recent development, Bayer signed a deal of US$ 66 billion to acquire Monsanto Company globally. It would certainly affect the seeds and agrochemicals business in India. 

The income of another seed major, Kaveri Seed Company fell by 23 percent during 2015-16. However, with a better monsoon, it expects 2016-17 to prove good. The sale is expected to improve during the monsoon months by 13.28 percent. Kaveri’s segment for hybrid maize, rice and millet is expected to grow by 20-25 percent and reap benefits. The company has made its presence felt in Andhra Pradesh and Karnataka and plans to expand business.

A group company of UPL, Advanta, operates in agriculture sector since last two decades, is engaged into development, production and sale of field crop and vegetable seeds. As an effect of two consecutive deficient monsoons, the sales of the company dropped 12.14 percent after 2012-13. Trends in 2016-17, indicate a growth in sales.

TRACTORS AND FARM EQUIPMENT

Tractor industry is of the major industries that caters directly to the farmer. The industry has seen a boon owing to increased farm mechanisation, but sales have also been affected due to persistence of droughts for the past two years. With the hopes of a good monsoon, sale of tractors is expected to rise. If unseasonal rains give the harvest season a miss, sales are expected to rise further.

India’s largest tractor manufacturer which holds the 40 market share, Mahindra and Mahindra’s, sales during the Sep 2016 to Mar 2017 is expected to go up to 15.3 percent. Anticipation of a positive monsoon has already started yielding its results.

The sales of Escorts, a key player in tractors, self propelled harvesters and farm implements, improved by the end of the year 2016 compared to the years 2014 and 2015. Due to good monsoon rains,trends suggest a minimum of 4.5 percent growth in the current quarter. Preliminary data suggest that Escorts Agri Machinery domestic volume grew by 12.2 percent in June 2016.

VST Tillers Tractors is a manufacturer of power tillers, tractors, spares, rice transplanters and reapers. Power tillers and tractors contribute to 54 percent and 32 percent of the total sales respectively. The company posted a record 17.23 percent growth in sales by the end of March 2016, compared with 11.63 percent growth in 2014-15. Sale of tillers has already been on a rise. The industry has grown at a CAGR of 8.6 percent from FY 2007 to 2015. In anticipation of bountiful monsoon rains and hence increased agricultural activities, at least a 34 percent rise in sales is predicted during the Mar-Sep 2016 while nearly 44 percent rise in sales is predicted during September 2016 to March 2017.

IRRIGATION SECTOR

An increasing government thrust and launching of various schemes on micro irrigation after two consecutive years of drought are bound to increase sales. By the end of March 2017, a 35 percent increase in sales is projected for the industry.

Jain Irrigation Systems is the India’s largest manufacturer of micro irrigation systems, piping systems, tissue cultured plants, solar photovoltaic and solar water heating systems. Micro irrigation systems and related products make up about 40 percent of the total sales of the company. Two years of drought impacted the company’s business and the sales went down. As per the industry estimates, the company can register 17-18 percent growth in the current fiscal year. For another agri company, EPC Industries, micro irrigation systems contribute to about 65 percent of their total sales. For the quarter that ended on March 2016, the company reported a sale of Rs 56.64 crore, 9.78 percent up from previous quarter sales. On a year on year basis, the company saw a 21 percent rise in sales compared to the previous year. The trend is expected to continue for the financial year 2016-17.

FOOD PROCESSING

Increased productivity of the farm sector ensures bright prospects for food processing industries. The rice industry has already started to harvest the fruits of a positive monsoon sentiment.

Kohinoor Foods is primarily involved in rice which contributes to nearly 90 percent of the total revenue of the company. The basmati sale is expected to go up to 20 percent. The price of basmati rice had dropped during the last year but has stabilised now and is expected to reap profits.

Hatsun Agro Products focuses on four key areas of dairy sector – milk, ice-cream, curd and cattle feed. The milk segment contributes the maximum at 71.64 percent of the total sales. With stabilisation of milk prices, the company is expected to perform better in 2016-17, with a nearly 21 percent rise in sales. The overall business is expected to grow by 17-25 percent.

In sugar sector, a bumper sowing of sugarcane in the wake of bountiful monsoon rains can help mills to recover. Also, adaptation of stricter policies and agreement with the government fixed minimum support price (MSP) can help ease the burden on the sugar mills. Good monsoon rains are expected to decrease the sale deficit. By the end of March 2017, growth in sales is expected to increase to 24 percent.

Agriculture sector which provides livelihoods to 54.6 percent of India’s population, saw its worst phase due to two consecutive deficient rainfall. The contribution of agriculture to the gross value added (GVA), was noticeably declined and fallen by nearly 3 percent from 18.3 percent during 2013-14 to 15.3 percent during 2015-16. Let us hope that worse is over and the sector is poised to big leap forward.

(Figures are taken from a recent Assocham study) 

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