Global economy is under threat again due to the spread of Delta variant of covid to several countries. While this variant is threatening the global economy, it may support the stock market in the form of increased money flow. Economic worry means the US Fed will postpone rate normalisation and this hope has pulled the US 10 G-Sec yield to a 5-month low. Nifty reached 15,900 levels on intraday basis during last week, but could not hold on due to heavy selling pressure. A sudden cut in crude oil price, after reaching a six- year high, increased volatility across the globe and it reflected in NSE’s volatility index as well. “Sudden spurt in VIX from multi months low indicates some caution for short term market action,” says Siddhartha Khemka, Head – Retail Research, Motilal Oswal.
Despite increased volatility, technical analysts are still hopeful of an upward breakout and say participants need not worry as long as Nifty remains above 15,450. “The consolidation may continue for some time. But considering the technical set up, the breakout most probably will be on the upside,” says Gaurav Ratnaparkhi, Senior Technical Analyst at Sharekhan.
(Narendra Nathan/ET Bureau)
Sector update: Agri inputs and chemicals
Strong demand to boost agri input co revenues: Agrochemicals set to deliver healthy revenue growth; fertilisers stay flat.
We expect agri-input companies to deliver 11% y-o-y revenue growth on the back of strong demand in the export segment in current quarter; higher global commodity prices and favourable comparable in the export segment due to production disruption in April-June 2021.
Our channel checks indicate that all agrochemical companies have passed on the impact of higher raw material prices to the consumers in the quarter. Higher realisation for agri commodities aided in passing higher costs to consumers. Freight costs continued upward trends due to 1) container shortages, 2) backlog of clearance due to the Suez Canal blockage, and 3) slower exports out of China due to the congestion at the Yantian port.
We remain constructive on the contract manufacturing and export-oriented business as the demand environment and order book inflow look robust due to higher global commodity prices resulting in better sowing, and stricter environment compliance in China pushing up the cost curve, making Indian manufacturers competitive.
Key things to watch out for in April-June 2022 earnings: 1) stabilization of the freight costs, 2) cooling off in key intermediates and other raw materials, 3) possible price hikes to compensate for rising packaging/freight costs. PI Industries continues to be our top pick in the agrochem space, considering 68% growth in CSM business on the back of execution of the order book and ramp-up of new molecules. In our coverage universe, our pecking order is UPL, PI, Rallis India, Dhanuka and Coromandel.
Agrochemicals: Favourable trend in exports; domestic business to deliver lower growth due to high base
We expect agrochemical companies to deliver 10.8% y-o-y revenue growth, driven by PI (+31%), Rallis (+12%) and UPL (+9%). Due to the high base of April-June 2021, we expect Dhanuka’s revenue to decline 2% y-o-y. However, we expect its April-June 2022 revenue to deliver 67% growth vs April-June 2020, which is commendable. We expect domestic brands to grow by 5-6% y-o-y due to the higher base effect. Excluding price inflation of 3%, we expect domestic industry growth of 2-3% in volume terms. We expect EBITDA margins to improve 74bps across our coverage universe.
Fertilisers: Volume decline due to higher raw material prices
Fertiliser industry volumes continued to decline in first quarter. However, after an increase in government subsidy on complex fertilizer in May, NPKS sales picked up from June, which benefitted Coromandel. Imports declined across all categories of fertilisers. Overall volumes declined for diammonium phosphate(-33%), NPKS (-19%) and Urea (-17%) due to higher global fertilizer prices.
We expect Coromandel to report flat overall volumes but expect an 8% increase in manufactured volumes. We expect manufactured EBITDA/ton to decline by 5% due to higher raw material costs.
(Emkay)
