Discover the factors influencing the potential revenue dip in Indian agrochemical firms.
The Indian agrochemical sector has played a vital role in the country’s agricultural landscape. With a rich agricultural heritage, India has been both a producer and consumer of agrochemicals for decades. However, recent times have brought significant changes to the industry, introducing new challenges and opportunities that are reshaping its trajectory.
Looking back at its history, the Indian agrochemical industry has witnessed substantial growth in the past few decades. The Green Revolution of the 1960s and 1970s marked a pivotal period where the focus shifted to high-yield crop varieties. This shift led to an increased use of agrochemicals to enhance agricultural productivity, and major companies in the agrochemical sector were established during this era.
According to a report by CRISIL, as cited by the Economic Times, Indian agrochemical companies may face a decline in revenue in FY24. This article will explore the reasons behind this and what the future holds for the industry.
According to a report by CRISIL, as cited in the Economic Times, the Indian agrochemical sector may experience a decline in revenue and operating margins for the first time in a decade. The report suggests that revenue is expected to decrease by 3% in FY 2024, and operating margins may decline by 400-450 basis points.
This decline in revenue is attributed to several factors, including falling global prices, weak export demand, and the impact of Rabi sowing due to low reservoir levels. These challenges contribute to the anticipated decrease in the agrochemical sector’s financial performance.
Reason for Decline Forecast
According to a report by Economic Times, Poonam Upadhyay, Director at CRISIL Ratings, has highlighted several factors contributing to the challenges faced by the Indian agrochemical industry. Increased supply of low-cost agrochemical products from China has led global agrochemical companies to accumulate 45 days’ worth of inventory between January and June 2023. Concerns about the global economy drove this inventory surge, coinciding with a decline in exports from India during the first half of the financial year.
Furthermore, low volume growth is anticipated for the current fiscal year as domestic manufacturers hold high inventory levels due to reduced exports. The drop in reservoir levels, caused by irregular monsoons, poses a threat to Rabi sowing, which could reduce the consumption of pesticides. Lower exports and domestic demand may impact the operating profitability of agrochemical companies.
Growth Opportunities For the Industry
Bio-Pesticides and Organic Farming
The rising demand for environmentally friendly farming practices has created a substantial market for bio-pesticides and organic products. Indian agrochemical companies are responding to this trend by focusing their investments on research and development to develop sustainable and non-toxic solutions for the agriculture industry.
The volume of pesticide production across India in FY22 was 299 thousand metric tons.
Adoption of Technology
Adopting modern agricultural technologies, such as precision farming, data-driven analytics, and automation, can potentially bring about a significant transformation in the agrochemical sector. These technologies enable companies to enhance resource utilisation, improve efficiency, and reduce the environmental impact of farming practices.
The future of the agrochemical industry in India will be shaped by several key factors, as reported by the Economic Times. These factors include the pace of demand both within India and abroad, weather conditions in crucial export markets, particularly in China, and the prices of essential products and raw materials.
In addition to these considerations, according to IBEF, NITI Aayog member Ramesh Chand has highlighted the industry’s potential for growth beyond its current rate of 9%, even in the face of competition from China. He also emphasised the industry’s need to pay attention to the shift from traditional agrochemicals to bio-pesticides, a transition that is taking place in Western countries.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The article is for information purposes only. This is not an investment advice.