New Delhi: CRISIL Ratings believes agrochemicals will be one of the fastest-growing industries in India’s manufacturing sector. They expect the industry to post a compounded annual growth rate (CAGR) of 12% - 13% between fiscals 2014 and 2019.
Agrochemicals are not as sensitive to economic downturns as many others, though their growth does moderate in adverse conditions. While prospects are healthy, companies need to ensure efficient management of working capital and regulatory risks to sustain credit profiles. And as they expand operations abroad, managing debtors will be crucial because of longer credit cycles in the US, South America and Europe.
Efficient sales realisations will, therefore, be an imperative to avoid liquidity pressures. On the regulatory front, there remains a risk of ban on some products that are already proscribed in developed countries. Also, as environmental norms become stricter, greater efforts will be needed to reduce polluting residues.
CRISIL expects almost 25% - 30% of capital expenditure (capex) in the medium term will go towards installing/upgrading pollution control infrastructure so as to ensure operations are not affected by environmental issues.
Key growth drivers for the domestic agrochemical industry India's population, the second-largest in the world, will remain on a growth trajectory. Given the government's initiative on food security, per-capita consumption of food grains and therefore the demand for them will only increase.
However, structural issues in agriculture such as limited farmland availability, low share of irrigated land, low automation, high crop losses and inadequate storage infrastructure mean poor crop yields compared with developed countries, leading to low per-capita availability of food grains.
Prevention of crop losses is the immediate requirement to bridge the demand-supply gap in food grains, which necessitates deeper penetration of agrochemicals. Additionally, factors such as decline in the availability – and the increasing cost – of farm labour are also positives for the sector.