After two consecutive years of weak monsoons, the near-normal monsoons in 2016 came as a big relief to agri businesses in India. Companies producing agri inputs — seeds, fertilisers and pesticides — did struggle to grow their revenues. However, low raw material and other costs helped them rake in higher profits in the first half of the 2016-17, compared with the previous year. This had a positive rub-off on their stock performance, too.

The sales of seeds, which is the first agri-input, typically commences ahead of the monsoons. The aggregate revenues of key seed producers, Kaveri Seed Company and Monsanto India, declined 15 per cent during the April-September 2016 period. This was largely on account of shift in cropping pattern from cotton to pulses, thanks to the strong demand for pulses. Despite a decline in sales, these companies managed to improve their profitability by controlling costs. The aggregate operating profit margin improved by 3.4 percentage points to 24.7 per cent.

Also, aggregate revenues of fertiliser manufacturers declined 11 per cent during the April-September 2016 period. Lower energy costs and reduction in subsidy, led to decline in their aggregate revenues. And thanks to reduction in input costs, the aggregate operating profit margins of the fertiliser manufacturers improved from 6.1 per cent in the first half of 2015-16 to 8.7 per cent during the first half of 2016-17. Strong operating performance and lower interest cost, due to softer interest rate regime, helped these companies double their net profit during the first six months of this fiscal.

Agrochemicals, which is the last agri-input to be used in the cultivation process, fared better than seeds and fertiliser makers. Aggregate revenues of agrochemical producers were up 12 per cent during April-September 2016-17, compared with the previousyear. During the period, operating profit margin of these companies improved by 1.6 percentage points to 17.4 per cent. Launch of products and better sales mix improved margins of agrochemical companies. The aggregate net profit for the first half of the current fiscal were up 40 per cent, compared with the previous year.

Related Topics