Commodity News- Agri input firms see higher Q2 profits due to rise in sales, normal monsoon
They aim to achieve the full benefit of price hikes in the December quarter
Agricultural input companies have posted decent growth in revenue and net profit for the quarter ended September, with sales rising on normal monsoon rain and price hikes.
PI Industries, for example, reported a 29 percent jump in revenue to Rs 7.2 billion from the same period last year. Net profit grew 17.5 percent to Rs 944 million. Rallis India posted 11 percent growth in the quarter's revenue to Rs 6.5 billion and a 10 percent jump in net profit to Rs 852 million.
While companies have been able to pass on their raw material price hikes to consumers, the lag time of four to six weeks in absorbing the hike did marginally affect their profit margin. They aim to achieve the full benefit of the price hikes in the December quarter.
"Performance across the business segment remained good despite the erratic southwest monsoon this Kharif season. Though classified as normal, at a deficit of 9.4 percent against the Long Period Average, only 68 percent of areas received normal rainfall. Our close working with farmers in providing knowledge, products, and information to deliver better value out of crops delivered robust growth despite market challenges, like increased raw material prices and fluctuating commodities prices. We do hope for a better rabi season, with a normal forecast for the northeast monsoon and improved reservoir water levels," said V Shankar, managing director (MD) at Rallis India, part of the Tata group.
Export-centric UPL posted 13 percent growth in revenue, primarily because of an eight percent jump in its September quarter volume growth. UPL generates a little over 80 percent of revenue from export -- it raised product prices by an average of four percent, as against declines of four percent and one percent in financial years 2016-17 and 2017-18, respectively. Other agri input companies have also raised their product prices by the same tune. Value-added and specialized chemicals saw double-digit price rises during the quarter.
"We are on a growth path due to steady demand. We are also working on the development of new products at affordable prices," said Rajesh Aggarwal, MD at Insecticides India.
The gross margin at PI Industries stayed under pressure (down 513 basis points over a year, to 42.9 percent) due to higher input costs. These offset higher volume growth in both the domestic and export businesses.
"The growth in domestic (24 percent over a year) and export (32 percent) businesses was majorly led by higher volume growth. The management maintained its guidance (expectation) of 18-20 percent for FY19 and expects to be on the higher side of the range. The company plans to launch two-three products every year in both segments," said Archit Joshi, an analyst with HDFC Securities.
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