The agrochemical sector is expected to continue to post double-digit revenue growth in the next fiscal year at 10-12% due to strong exports, according to a report, although domestic sales may remain constrained by an uneven monsoon and an increase in slower rural incomes. .
Exports will help the agrochemical sector maintain double-digit revenue growth this fiscal year and next (at 12-13% and 10-12%, respectively), compared to 15% last fiscal year, although Domestic sales will be slowed by an uneven monsoon and a slower rise in rural incomes, CRISIL Ratings said in the report.
A sharp rise in input prices, especially imported ones, will lead to a 150 to 250 basis point (bp) moderation in operating profitability over the two fiscal years, he said.
However, accrued liabilities and healthy balance sheets will ensure stable credit profiles despite an expected increase in working capital and capital expenditures, the report adds.
“The China +1 sourcing model has been a tailwind for Indian players as large export consumers diversify their supplier base. This, combined with continued healthy demand from Brazil and the United States (45% of India’s exports) and increased supply to Europe (15% of India’s exports ), will lead to export growth of 15% this fiscal year and 12-13%. then.
“As a result, the share of exports in overall revenue is expected to reach 53% by FY2023,” said Anuj Sethi, Senior Director of CRISIL Ratings.
On the other hand, the report states that after strong growth of 20% in the previous fiscal year, domestic demand growth will experience a sharp moderation to 8-9% in this fiscal year, with an uneven monsoon. impacting harvests during the key kharif season (June-October). ) and having a moderate impact on rural incomes.
Besides, the sown area has only increased by one percent this rabi season (October-February), he added.
In the next fiscal year, the report further indicates that if there is a normal monsoon and a modest increase in cultivated area as well as better rural incomes, domestic growth will remain stable at 8-10%.
Meanwhile, prices of key inputs such as glyphosate, glufosinate, imidacloprid and bifenthrin, which are tied to crude and phosphorus, have risen nearly 30% since March 2021.
With slowing domestic demand and high competitive intensity preventing players from fully passing on higher input prices, operating margins are expected to drop to 13% in FY22 and FY23 from 14.5% in FY2022 and FY23. during fiscal year 21.
Crisil Ratings Team Leader Sandeep Narayanan said: “With export demand remaining robust and product registrations increasing, capital expenditure will increase from Rs 5,000 to 5,500 crore in each of the next two months. years, compared to Rs 4,200 crore last year.” He added that working capital requirements will also increase due to the higher cost of inventory and increased exports, where the credit period is longer.
”That said, careful financing of additional working capital and capital expenditures will keep leverage comfortable at 0.3-0.4x through FY23 (0.24x in FY21 ), while the interest coverage ratio is expected to hold steady at nine times Narayanan added.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)