5 Agriculture Input Stocks To Buy For Good Returns As Suggested By Sharekhan

Agri stocks witnessed pressure on margin owing

According to Sharekhan, a major percentage of the raw material price increase was passed on to end customers, which helped to maintain gross margin, agri input companies within our coverage saw margin pressure due to higher export freight costs. Fertiliser firms like Coromandel International, on the other hand, saw their profits improve as a substantial increase in fertiliser subsidies on DAP offset a rise in phosphatic prices. Our coverage universe's revenue growth was decent, at 11.1 percent y-o-y, thanks to robust export performance, albeit domestic revenues were impacted by the delayed and irregular monsoon. Coromandel International and Sumitomo Chemical India reported better-than-expected earnings growth in Q1FY22.

Outlook on Agriculture Input Stocks

According to Ministry of Agriculture figures, the monsoon was 8% lower between June 1 and August 20, resulting in 1.55 percent less sowing area in the current kharif season. Sowing is expected to grow as the monsoon season progresses and MSPs rise, resulting in increased crop prices.

Sharekhan believes that this would aid domestic agro-chemical companies in reporting significant growth (the monsoons in August and September 2021 will be critical for domestic focused agri-input operators' earnings), while favourable sourcing strategies of global companies would promote market share gains in the exports category. The aforementioned elements, as well as the large possibility from off-patent items, are likely to fuel robust growth for telecommunications.

Bullish on Agriculture Input Stocks

In the fertiliser space, Coromandel International reported strong numbers due to improved DAP margins despite a decline in total phosphatic fertiliser (DAP + complex fertiliser) sales volumes by 6.2% y-o-y to 7.8 lakh tonnes. Overall, margins were weak due to higher freight cost. The RM cost was mostly passed on to final customers which protected the gross margins of most of the companies in this space, says the brokerage.

"Coromandel International saw stable margins on the back of sharp hike in fertiliser subsidy on DAP, inventory gains, and benefit of backward integration. Overall, agri-input companies under our coverage reported earnings growth of 22.6% y-o-y supported by decent revenue growth and higher realisations due to a better product mix," the brokerage has said.

5 Agriculture Input Stocks To Buy For Good Returns As Suggested By Sharekhan

Key Risks

Agri-input firms' earnings may be impacted by lower-than-expected sowing for the Kharif Season and higher raw material prices.

Leaders for Q1FY22: Coromandel International, Sumitomo Chemical India.

Preferred Picks: Coromandel International, PI Industries, and Sumitomo Chemical India.

Disclaimer

The above stocks are based on the report of Sharekhan. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor.