Agri Products and Chemicals: likely to show de-growth of 2.8% y-o-y in net sales
Agri Products & Chemicals
- Prabhudas Lilladher's ‘Agri Products and Chemicals’ coverage universe is likely to show de-growth of 2.8% y-o-y (down 25.3% q-o-q) in net sales during Q1FY13. EBITDA and PAT are expected to show de-growth of 4.2% and 21.9% y-o-y, respectively.
- Fertiliser players are likely to witness lower sales volume during the quarter because industry had pushed inventory in the market during Q4FY12 and inventory at distributor level is expected to get liquidate in H1FY13. Hence, it would result in lower dispatches for fertiliser players during H1FY13.
- On account of higher working capital as on March 31, 2012, all fertiliser players had seen increased debt levels. Prabhudas Lilladher believe that finance cost of players would mount substantially in Q1FY13. Prabhudas Lilladher expect that it is a short-term (may be single quarter) phenomenon and working capital is expected to get released in H1FY13. Finance cost of fertiliser players under coverage are expected to go up by 51.4% y-o-y (2.7% q-o-q) during Q1FY13.
- Indian Fertilizer Industry is witnessing tough time on account of government inaction on the policy front. CCEA has deferred the decision on urea price hike and policy recently. Depreciating currency is exerting pressure on the margin of non-urea fertilizer players. It could lead to further price hike at the farmer level as government finances are in a tight condition. It may result in muted volume growth in non-urea fertilizer in the near term despite witnessed de-growth in FY12. Prabhudas Lilladher remain cautious on non-urea fertilizer players in the next six months and prefer urea players.
- Indian Agrochemical Industry has witnessed a tough time in H2FY12. However, hike in minimum support price and uptick in agriculture commodity is a positive indicator for the industry in the near term. Industry has taken a price hike by 5- 10% to pass on higher cost led by rupee depreciation. Prabhudas Lilladher remain cautious in the short term (3 months) on the agro-chemical space. They remain positive on the space from a long-term perspective. Their interaction with Industry players suggest that Indian Agrochemical Industry is likely to grow by 12-15% CAGR in the next couple of years.
- Government has announced an increase in the minimum support price by 15- 53% across the Kharif crop category which Prabhudas Lilladher believe that, is a positive indicator for the Agri Input industry because industry is witnessing pressure in farm income on account of increased input prices.
- Prabhudas Lilladher remain positive on Chambal Fertilizer and Chemicals in the short term (6months) and Rallis India from a long term perspective (12-24months).
Fertiliser volume – recovered in January and February 2012
- Non‐urea fertiliser sales volume show decline of 14.7% y-o-y during Apr‐May 2012: Overall fertiliser sales volume de-grew by 6.7% y-o-y. Urea and non-urea fertiliser volumes have shown decline of 1.1% and 14.7% y-o-y, respectively. Even, manufactured non-urea (excl. SSP) and SSP volume has shown steep decline of 36.3% and 39.1% y-o-y, respectively. Prabhudas Lilladher believe that players had pushed inventory aggressively in the market during Q4FY12 on account of lower non-urea fertiliser subsidy in FY13. It had resulted in lower volume during Q1FY13.
Monsoon – Key Factor to Watch
Monsoon will be the key factor to watch in short term and if the monsoon turns out to be adverse, it is likely to affect the demand of the fertilizers/agrochemicals adversely during FY13. Further, if there is an El-Nino effect, it could result in large deficiency in rainfall which could be a serious cause of concern.
Tata Chemicals - TCL’s net sales are expected to de-grow by 4.7% y-o-y to Rs28.1bn, primarily on account of lower fertiliser sales volume. Prabhudas Lilladher expect 1.2% y-o-y growth in EBITDA to Rs5.3bn. Interest is expected to be higher by 33.6% y-o-y to Rs1.3bn (up ~5% q-o-q) on account of higher debt led by increased working capital requirement. They have considered tax rate of 30.0% in Q1FY13 v/s 19.5% in corresponding quarter of previous year. It would result to 18.7% de-growth in PAT to Rs1.7bn. They have not factored in any forex gain/loss in their estimate.
Coromandel International - Prabhudas Lilladher expect that fertilizer volumes (manufactured and traded) would be lower by ~30% y-o-y to 4.2Lac MT, primarily liquidation of inventory at distributor level in the industry. Non-subsidy business (excluding Sabero) growth is likely to moderate to ~15% y-o-y. They expect that EBITDA margin would be lower by 237bps y-o-y (up 540bps q-o-q). Interest is expected to be higher by ~103% y-o-y to Rs500m (flat q-o-q) on account of higher debt led by increased working capital requirement. Prabhudas Lilladher are considering tax rate of 30.0% in Q1FY13 v/s 30.9% during Q1FY12.
United Phosphorus - Prabhudas Lilladher expect that UPL would report 16.1% y-o-y growth in sales to Rs21.6bn on account of contribution from DVA Agro Brazil (started contributing since Q2FY12). Seed revenue of Advanta India worth Rs500m included in UPL’s sales in Q1FY12. Hence, UPL is likely to show sales growth of 19.3% y-o-y excluding seeds income. They are assuming EBITDA margin of 18.3% (down 24bps y-o-y, up 10bps q-o-q). Depreciation is likely to be higher by 27.3% y-o-y to Rs800m (flat q-o-q) due to contribution from DVA Agro Brazil. UPL has guided for FY13 tax rate of 15-20%. Hence, Prabhudas Lilladher are considering tax rate of 20% in Q1FY13 (same as Q1FY12). They have not factored in any forex gain/loss in their estimate.
Jain Irrigation - Prabhudas Lilladher believe that Micro irrigation (MIS) would show muted growth (negative 5% y-o-y), resulting in 4.3% growth in the net sales during Q1FY13. They are expecting 205bps y-o-y dip in EBITDA margin to 22.0% (up 180bps q-o-q) during the quarter. Finance cost is likely to grow by 22.5% y-o-y (flat q-o-q) to Rs950m. It would lead to de-growth in PBT by 24.6% y-o-y. JISL has guided tax rate of 23-24% for FY13. Hence, Prabhudas Lilladher are considering tax rate of 25.0% in Q1FY13 v/s 24.8% during Q1FY12. It would lead to 24.8% y-o-y de-growth in PAT. They have not factored in any forex gain/loss in their estimate.
Chambal Fertilisers - Net sales are expected to de-grow by 21.0% y-o-y due to lower urea as well as trading volume. Prabhudas Lilladher expect that manufactured urea volume would be lower by 15.2% y-o-y to 4.7Lac due to maintenance shutdown of plants. They expect stable blended EBITDA margin on y-o-y basis during Q1FY13. Interest is expected to be higher by 65.0% y-o-y to Rs400m (up 20.5% q-o-q) on account of higher debt led by increased working capital requirement. Depreciation is likely to be lower by 18.9% y-o-y to Rs535m (flat q-o-q) because Chambal’s Gadepan-I plant has been fully depreciated in FY12.
Rallis India - Prabhudas Lilladher expect 11.0% y-o-y growth in consolidated sales led by 5.0% y-o-y and 35.0% y-o-y growth in pesticide and seed business, respectively. They believe that pesticide business growth would be muted and primarily driven by export business during Q1FY13. They have considered EBITDA margin of 16.0%, up 128bps y-o-y on account of margin improvement in seeds business led by operating leverage. Industry has taken price hike by 5-10% in pesticide business due to rupee depreciation. Hence, Prabhudas Lilladher have not considered EBITDA margin improvement in pesticide business. They expect that depreciation would increase by ~47% y-o-y due to capitalization of Dahej unit in FY12. Further, they have considered tax rate of 18.5% v/s 21.9% in Q1FY12 on account of higher contribution from seeds business which is tax free. Prabhudas Lilladher have not factored in any forex gain/loss in their estimate.
Deepak Fertilisers - Prabhudas Lilladher expect that net sales would be flat y-o-y because higher chemicals sales would be offset by lower trading sales. They are expecting 4.5% and 11.0% y-o-y volume growth in chemical and fertiliser segments, respectively. They expect that EBITDA margin would be lower by 493bps y-o-y (up 530bps q-o-q) on account of higher raw material prices, primarily in chemical business and rupee depreciation. Interest is expected to be higher by 57.5% y-o-y (lower 17.7% q-o-q) to Rs200m on account of higher debt led by increased working capital requirement.
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