Indian Agrochemical Sector

Agriculture Sector

  • Agriculture continues to maintain its stronghold in our country’s socia-economic framework. Contributing about 15% to the country’s GDP agriculture provides economic sustenance to nearly half of country’s population besides shouldering the responsibility of providing food security to one and a quarter billion of people.
  • Agricultural infrastructure and productivity in India has a long way to go. With just 45% of net sown area having irrigation facilities and an estimated 15-25% of potential crop production being lost due to insects, weeds and diseases, the headroom for productivity improvement is immense.

Global Perspective

  • The matured  global  agrochemical  industry  has  slowed  down  in  the  past  four  years  owing  to  the  lowering  of  crop  prices  and  is  now  in consolidation phase. Global agrochemical players are categorised into innovators and generics. Innovators are R&D patented product-based players like BYRCS, Syngenta, BASF, Monsanto, Dow and Dupont. Off-patented products-based players are termed generic players. Their key strength is low-cost manufacturing and a wide distribution network.
  • Patented products contribute only 20% of the global market, while off-patented products (generics) a significant 80%. However, 25% of the generic space is still marketed by innovators, offering an opportunity for generic players to garner a larger share of this pie. Besides, products worth US$ 6.3bn are set to go off-patent by 2020, favourably placing generic players to scale up their market presence and significant export opportunities for India’s Generic Agrochemical Companies
  • The recent M&A activities will consolidate 6 large companies (Adama&Syngenta, Dow Chemicals & Dupont ,Bayer and Mosanto) into three global majors and they will control 80 % of the global agrochemical market. With the rising R&D cost for most of the global companies, the consolidation will help them focus more on the core competencies apart from cost cutting and improved synergies from a combined product portfolio. This could lead to increased outsourcing of opportunities for commercialisation of molecules and manufacturing for the proven industry players
  • The business environment in China continues to be challenging with implementation of stringent environmental norms and new measures on industrial safety in the chemical industry. North China has been affected badly with almost 7 rounds of inspections. Antidumping duty has been imposed on MPBAD, Resorcinol and Phenol by the Chinese Govt. with rebate on export benefits pruned from 13% earlier to 11%.

Domestic Agrochemical Industry Perspective

  • India is the fourth largest global producer of agrochemicals after the US ,Japan and China. Generating a value of US $ 4.4Billion(ͅ28600 crore) in FY15, Indian Agrochemical Industry is expected to grow at 7.5% per annum to reach US $ 6.3 billion( 40950 crore) by FY20.Nearly half the demand comes from domestic market while the other half goes towards export. While the domestic demand is expected to grow at 6.5% p.a. ,exports are estimated to grow at 9% p.a. during the same period.

• The Indian Agrochemical usage pattern includes  insecticides contributing a majority 40% ,followed by herbicides at 28%, fungicides at 27% and other products contributing the remaining 5%.The increasing farm labour cost is boosting the usage of herbicides while growing demand for fruits and vegetables is driving a lower potential to increase the arable area.

  • Agricultural per hectare yield in India continues to be among one of the lowest in the world. This is an outcome of a number of limiting factors confronting Indian agriculture sector including high monsoon dependence, steadily reducing arable land, falling land holding, low adoption of modern farming techniques, increasing pest attacks and lower consumption of nutrient and crop protection agents.

    •  As per department of agriculture, avoidable losses on account of pests in India range from 8-90%, with the highest being in cotton (49-90%) and then in pulses (40-88%). Overall, every rupee spent on agrochemicals saves an average produce of five rupees. Based on industry sources, agrochemicals help save 18-20% of crops cultivated in India each year.

Crop Avoidable Losses% Cost : Benefit ratio of pesticide use
Cotton 49-90 1:07
Rice 21-51 1:07
Mustard 35-75 1:12
Sunflower 36-51 1:08
Groundnut 29-42 1:28
Maize 20-25 1:03
Sugarcane 08-23 1:13
Pulses 40-80 1:04
Vegetables 30-60 1:07
Fruits 20-35 1:04
  • Andhra Pradesh (Seemandhra and Telangana), Maharashtra and Punjab are the top three states contributing 48% of pesticide consumption in India, with Andhra Pradesh leading with a 24% share. The top seven states together account for more than 75% of crop protection chemicals usage in India. Paddy (rice) followed by cotton are major agrochemical consuming crops.
  • At 0.6kg /ha ,the consumption per hectare of pesticides in India is amongst the lowest in the world .It stands at 5-7 kg/ha in the UK and the 13kg /ha in China. The need is to educate the farmers on the benefits of pesticides and also their right and adequate use to enhance per hectare yield.

We believe that there is a space for substantial growth considering the available opportunities among the Agrochemical Market and cover the major players among the industry along with their growth prospect.

PI Industries
Dhanuka Agritech
Rallis Industries
CMP                                                            621
Market Cap (₹ in Crore)                         31630
PE                                                               15.59
Industry PE                                               36.51
P/BV                                                           3.38
Equity (₹ in Crore)                                    183
52 Week High/low                               902/603
Promoter Shareholding                        28.23%
Mutual funds/UTI                                 11.35%
Qualified Institutional

Investor                                                  43.14 %

3Year Avg Sales Growth                       14.84%
3Year Avg Profit Growth                      17.15%
3Year Avg Return on

Equity                                                      29.51%

Product Portfolio

Herbicides 29%      Insecticides 23%

Fungicides 29 %     Others 9%

Seeds 10%

• UPL is the second largest post-patent global player in crop protection. It has evolved from a crop protection chemicals company into a complete agro solutions provider, offering seeds, crop protection chemicals, biologicals, soil nutrients and post-harvest solutions

• UPL is the 2nd largest post patent agrochemicals company globally with sales presence in 130+ countries, 33 manufacturing facilities,433 granted patents and 5884 registrations. As discussed earlier with several patented active ingredients expected to go off patent form an attractive opportunity for post patent/off patent companies including UPL.

• It is well diversified across geographies, with revenue contribution as follows:
20% :India
32% : Latin America
17% : North America
13% :Europe
18% Rest of the world

• UPL launched two brands of Gluphosinate for soyabean & corn in North America to fill its gap among the product portfolio .Gluphosinate directly competes with Glyphosate to which the targeted herbs have developed resistance. Given the headwinds surrounding glyphosate ,Gluphosinate could turn out to the next growth driver for UPL.

• UPL possesses in-house manufacturing expertise, reducing its dependence on third-party partners. Backward integration enables 70-75% of its manufacturing to take place in-house (50-55% in India and
20% overseas). It imports 10-15% from China and Europe (France and UK)

• UPL has successfully implemented the collaboration with Bayer to co-market its Unizeb Gold fungicide in Brazil. As per the arrangement, Bayer’s dealers will get points for selling Unizeb Gold along with Bayer’s Fox. These points will get converted into discounts at the end of the year, which can be used while making new purchases. The management has stated that the collaboration will help in resistance management, lifecycle management of new chemistries and increasing the spectrum for disease control.


UPL has broad portfolio ,with products catering to more than 10  major crop sectors. It product range ,covering crops across seasons ,de-risks it from seasonality. Branded and innovative products command higher margins  than commoditized products. The revenue share of branded products has gradually increased from 75% in FY14 to 86% in FY17. The revenue contribution from innovative products launched in the past three years has grown from 5% in FY15 to 15% in FY17. Revenue from innovative products is likely to improve further, aided by products launched in the last 2-3 years and by planned product launches across the globe in the next 2-3 years. Rising contribution of new products is likely to improve the revenue mix; higher share of value-added products will aid revenue growth. UPL spent 50% of the Rs14.2bn capex on new products as well as plants. For FY19, the management has guided for a capex of Rs15bn, of which Rs3-3.5bn will be towards registration of new molecules/products. We believe UPL to be one of the best bets among agrochemical sector with its diversified portfolio ,backward integration , geoghraphical diversification and scope to increase its market share from current 4%.

CMP                                                                      794

Market Cap (₹ in Crore)                                  10958


PE                                                                        26.58


Industry PE                                                         36.51


P/BV                                                                     5.55


Equity (₹ in Crore)                                            13.76


52 Week High/low                                        1035/674


Promoters Holding                                           51.43


3Year Avg Sales Growth                                 12.59%


3Year Avg Profit Growth                                34.74%


3Year Avg Return on Equity                           31.94%

5 Yr Price Chart

PI Industries

• PI is one of India’s leading players in the agri-input industry, primarily dealing in agro- chemicals, specialty fertilisers, plant nutrients and seeds. The company has exclusive rights with several global corporations for distribution in India, and is constantly evaluating prospects to further expand its product portfolio.

• The spectrum of services that PI provides to its customers are interwoven and spread across its value chain, ranging from research and development, product and application development, registration, manufacturing, marketing & distribution and customer connect initiatives.

• PI currently operates three formulation and two manufacturing facilities as well as five multi-product plants across Gujarat and Jammu, and one R&D unit in Rajasthan at Udaipur.

• Five new products were launched in the domestic market during FY18, have been well accepted by the farmers. In Custom Synthesis and Manufacturing , PI commercialized 4 new molecules in FY18. Expect new molecules revenue contribution to scale up as the global markets picks up

• As discussed earlier about the challenging business environment in China ,PI industries also faces raw material issues from China. In the current year, company has developed 6-7 alternative vendors in India for certain RM which were being imported from China. 16-17% of total RM is approximately being sourced from China and this proportion used to be more than 30% earlier.

• The company has made total capex of ₹ 1.7bn in FY18 and is looking forward for capex of ₹ 2.3 -2.5 bn in FY19E and FY20E through internal accruals.

• With the rising R&D cost for most of the global companies, the consolidation will help them focus more on the core competencies apart from cost cutting and improved synergies from a combined product portfolio. This could lead to increased outsourcing of opportunities for commercialisation of molecules and manufacturing for the proven industry players which could benefit PI Industires as it is one of the leading players.


The continued investment in new launches along with R&D and raw material constraint has led to the margins down and R&D expense has doubled to ₹ 650mn from ₹ 350mn in FY17 .The management has indicated that due to logistical issues order worth Rs700mn was stock at the port. The shipment has resumed and order delivery will take place in Q1FY19 will add up to the future growth . We see weak results as a passing phase and  expect PI Industries to deliver better growth margins in coming quarters will benefit from the already    investments  made  ,  the  new  product  launches  in  the    domestic  segment,  substantial  growth  in  the  custom  synthesis manufacturing (CSM) segment, healthy order book line-up, limited and reduced exposure to rising global raw material prices.


• DAL manufactures a wide range of agrochemicals covering herbicides/weedicides, insecticides, fungicides, plant growth regulators in various forms—liquid, dust, powder and granules—and reaches out to more than 10mn farmers.

• The company has a pan-India presence via marketing offices in all major states in the country, with a network of more than 8,000 distributors/ dealers selling to over 75,000 retailers. It has technical tie ups with four US and six Japanese companies.

• It has three manufacturing units located at Gurgaon (Haryana), Sanand (Gujarat) and Udhampur (J&K).

• DAL has total 90 products while top 5 products constitutes 26 % of revenue in FY18 .DAL has launched 11 products in FY17 which was 5-6 products in FY16 and the top 3 crop it caters includes includes Rice (25%) Horticultutre & Vegetables-22 % and Cotton.

• Out of total Revenue 2/3 belongs to speciality molecules and remaining generics.
• Key highlights of major products and management expectations

• a) Sempra: While volumes jumped 3x in FY18, they were still below expectation of management. This year has been impacted by muted outlook for the sugarcane sector;
• b) Targa Super: Performance was not as per expectation in FY18. Given increased soya, cotton and groundnut acreages, DAL is expecting a recovery in sales. o Generic completion in this segment has intensified. To counter this, Dhanuka has introduced Sakura (Soya ground nut cotton and onion) and MAXX-SOY
• c) Cover: Management is satisfied with the performance.• In FY19, DAL is looking at one 9(3)-Fungicide for grapes and two 9(4) – paddy herbicide and rice insecticide.

Post a disappointing Q3FY18 (5% revenue growth), Q4FY18 clocked strong 17% YoY revenue growth—highest in the past four quarters as well as highest among domestic peers till date. FY18 revenue grew 9% with volumes rising 10% and prices contracting 1% however gross margin contracted  majorly impacted by change in product mix and increase in raw material cost (from China) also contributed marginally.   We expect DAL to grow substantially due to its unique business model focussing on speciality molecules from global innovators and regular launches of new products mainly in the fast growing Herbicide Fungicide Segment however raw material prices could remain a concern as DAL imports 30 % of raw materials.

CMP                                                                      184

Market Cap (₹ in Crore)                                   3586


PE                                                                        21.47


Industry PE                                                         36.51


P/BV                                                                     3.01


Equity (₹ in Crore)                                            19.45


52 Week High/low                                      289.4/201.4


Promoters Holding                                         50.09%


3Year Avg Sales Growth                                  0.69%


3Year Avg Profit Growth                                 4.85%


3Year Avg Return on Equity                           18.2 %


Enterprise Value                                           3569 crore

5 YR Price Chart


• Rallis is a Tata Group owned Agrochemical Company and a key player in India. Tata Chemicals holds 50.09% in Rallis India and have plants located at Akola, Ankleshwar, Ratnagiri and Bharuch. Rallis is an established agrochemical player in India. The company, with market share of ~10% is well placed to capture emerging opportunities in the domestic agrochemical market on back of healthy distribution network, branded farm solutions and launch of new products.

• The company commissioned its new CRAMS facility in Q4FY18 and will manufacture molecule for two pharma customers. The capex incurred is Rs300mn and the company expects to generate 2x asset turns from the first year itself i.e. FY19, with margins being upwards of 20%. This molecule will be a substitution for imports and management believes that the potential for growth is huge. In the Agrochemicals business, the company expects better operating environment in FY19 and will launch 12 new products in the next 5 years.

• The company introduced three new products in 2QFY18, i.e. Cenator (fungicide for paddy), Pulito (fungicide for fruits and vegetables) and Odis (insecticide for sucking pests). These have received an encouraging response from farmers.

• FY18 has been a good year for Metahelix (Seeds business) and has gained market share in Paddy. Paddy continues to be the biggest contributor followed by Corn and Millets. While sales have
been muted, EBITDA margins have improved by 300bps yoy to 13% due to lower sales returns and healthy demand.

• International business contributes 32 % of total sales and with improved situation in Brazil along with demand improvement in Veitnam and EU supported by rupee depreciation indicates a positive outlook.


The company imports ~40% of raw materials from China. The prices of these imported raw materials have witnessed a sharp increase on account of supply side-constraints in China. The company is likely to increase product prices in 1QFY19 to offset the  increase in raw material costs and is likely to maintain margins at current levels. We expect that with new products in the pipeline , expectation of lower sales returns,  expectation of no  major increase in costs will drive EBITDA margin improvement and the revenue substantially.