A rebound in exports after two years will drive up the revenue of Indian agrochemical industry 6-7% this fiscal, supported by a favourably timed revival in global demand and normalisation of inventories just as domestic offtake slows due to a protracted monsoon that impacted kharif season sales. The industry's return to its long-term growth range of 8-10% next fiscal, however, hinges on exports sustaining the momentum and domestic demand picking up.

Steady realisations, stable raw material prices and limited US tariff impact will keep operating margins rangebound this fiscal and the next.

Modest capital expenditure and stable working capital will likely support leverage discipline, helping maintain credit profiles that have been under pressure in recent years.

An analysis of about 60 companies, accounting for nearly 90% of the industry revenue of ~Rs 90,000 crore, indicates as much.

For the record, domestic and export markets each account for almost 50% of the industry revenue.

The industry is seeing a recovery in export growth after two volatile years, driven by stabilising global supply chains and improving demand. Over 65% of the export revenue accrues from Latin America (LATAM; ~34%), North America (~19%) and Europe (~12%). LATAM is seeing modest growth, while Europe is recovering as inventories normalise. The US remains steady, with 80-85% of Indian shipments exempt from tariffs. Besides, India's position in US trade remains strong, with the US sourcing 70% of its agrochemical needs from China (~50%) and India (~20%).

Says Anuj Sethi, Senior Director, Crisil Ratings, “Improved farm sentiment globally will drive up export revenue by 8-9% this fiscal. However domestic demand will see the perils of excess rainfall causing crop damage, product returns and delayed field readiness. With realisations stabilising after two years of significant adjustments, the overall growth outlook of 6-7% remains more volume-driven than price-led.”

Domestic agrochemical prices have stabilised as the post-lockdown inventory overhang of China eased. Realisations on agrochemical imports from China have held around USD 5/ kg, broadly in line with last year. And, with inventories now balanced and firmer enforcement of environmental norms ensuring steadier supply flow, realisations are expected to stay steady through the year.

Says Poonam Upadhyay, Director, Crisil Ratings, “Operating margins of agrochemical makers are expected to hold steady at 12.5-13.0% on-year, but still below the pre-pandemic peak of ~15%. This stability comes after a sharp correction in realisations in fiscal 2024 and is supported by better operating leverage, softer input costs and tighter cost controls. Annual investments of ~Rs 5,500 crore in import substitution, new registrations and debottlenecking will continue, while steady cash accruals and disciplined working capital management will keep borrowing needs low.”

For agrochemical players in our portfolio, debt to earnings before interest, tax, depreciation and amortisation (Ebitda) is expected to improve to ~1.3 times and interest cover to ~7 times this fiscal and the next, from 1.5 times and 6 times, respectively, last fiscal.

Key monitorables include any disruption related to climate change, regulatory tightening and currency movement. Weather shifts are influencing demand patterns, while stricter scrutiny of pesticide use in India and overseas may drive portfolio changes. Currency exchange rate swings in key export markets also pose risks for players with concentrated exposure.