Crisil Ratings in its latest report has said that the agrochemicals sector's revenue is expected to grow at 7-9 per cent in FY26, following stable domestic demand and recovery in export volumes. However, it said historically low realisations will continue to hinder a return to double-digit growth seen before the Covid-19 pandemic. Operating margins are also seen to be recovering slowly, rising 100 basis points to 12-13 per cent, still below the pre-pandemic levels of 15-16 per cent, which will keep firms cautious with capital expenditure and focus on managing working capital to maintain their cash flows and balance sheets steady.
According to the report, revenue from exports, which comprises half of the sector's total revenue, is witnessing change. Global firms have largely resolved their excess inventory issues related to low-cost Chinese supplies and are now ordering closer to the cropping season to better manage working capital. While it expects healthy volume growth this fiscal, revenue growth will be modest at 3-4 per cent amid pricing pressures from competitively priced Chinese products. In the next fiscal, this may improve to over 7 per cent as these pressures ease.
The report said conversely, domestic revenue is seen rising by 8-9 per cent this fiscal due to good monsoon and adequate reservoir levels, which are boosting agricultural output. This is despite continuing pricing pressures from oversupply in China, albeit less severe than last year. It said that this trend is expected to continue, leading to fewer instances of inventory write offs. Additionally, with improved volumes, the sector's profitability is expected to improve as well. It expects the sector's operating margin to improve slightly to about 12 per cent this fiscal and 13 per cent next year, but ongoing pricing pressures will limit this growth despite higher sales volumes.
It noted that control over debt and gradual improvement in operating profitability will lead to the sustenance of stable debt protection metrics over the near to medium term. However, factors such as Chinese oversupply, adverse weather conditions impacting demand in key geographies, movement in raw material prices and any regulatory changes both in India and overseas will need to be watched.