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Elara Capital Favors Fertilizers Over Agrochemicals
Brokerage firm Elara Capital has indicated a preference for fertiliser companies over their agrochemical counterparts, citing a challenging outlook for the latter. Agrochemical firms are expected to continue experiencing subdued performance.
The Core Issue
Elara Capital anticipates that the agrochemical sector will face continued headwinds. Key demand-driving factors such as pest infestation, crop prices, and weather patterns remain under stress. The domestic agrochemical industry may see reduced volumes in the December 2025 quarter (Q3FY26). This is because higher sales returns from the kharif season in October are projected to be offset by growth from the rabi season.
Agrochemical Demand Weakens
Analysts at Elara noted that unseasonal and prolonged rainfall in October significantly impacted crop protection chemical consumption in India. This was exacerbated by a lost window for kharif season applications and more severe than normal crop damage. Lower crop, horticulture, and grain prices have diminished farmers' purchasing power, leading to decreased sales of speciality crop protection chemicals and seeds.
Specific challenges include falling maize prices, prompting crop rotation to jowar in certain regions. Horticulture crops, particularly grapes, have also experienced a sharp decline in agrochemical consumption. Regionally, South and West India have seen a substantial drop in agrochemical demand, while East and North India have remained stable. Furthermore, channel inventory levels are noted to be higher for some multinational corporations.
Fertiliser Sector Outlook
Within the fertiliser segment, Urea and DAP volumes have shown relative stability, with Urea volumes growing by 1% and DAP volumes declining by 2%. However, NPK volumes for the industry have seen a steeper fall of 15%.
Despite stable volumes for some products, fertiliser companies are grappling with rising raw material costs, particularly for sulphur and ammonia. Although marginal price hikes have been implemented, the nutrient-based subsidies for Q3 remain insufficient. Analysts foresee these higher raw material costs continuing to pressure the profitability of complex fertiliser manufacturers.
Elara's Top Bets
Despite the cost pressures, Elara Capital maintains its preference for the fertiliser sector due to identified growth opportunities without significant risk. The firm has issued a 'Buy' rating for Coromandel International and Paradeep Phosphates within the fertiliser space. Chambal Fertilisers has received an 'Accumulate' rating.
From the agrochemical segment, Elara Capital specifically favors UPL Limited and Sumitomo Chemical India, both receiving a 'Buy' rating. These selections indicate a nuanced view, acknowledging specific strong players even within a generally cautious sector outlook.
Impact
This analysis from Elara Capital provides key insights for investors focused on India's agricultural sector. The differing outlooks for fertilisers and agrochemicals could influence portfolio allocations. The recommended stocks represent potential opportunities based on the brokerage's forward-looking assessment of market dynamics, regulatory support, and company-specific factors. An impact rating of 7 out of 10 is assigned due to the direct recommendations and sector-wide analysis affecting a significant part of the Indian economy.