START of the rabi sowing season has invigorated the performance of agrochemical companies on stock exchanges. India’s agrochemical manufacturers have done exceedingly well on the bourses gaining 15.8% in market capitalisation against a 1.8% fall in the Sensex over the last one month. This appreciation in the market value comes both from growing earnings as well as improved valuations. In the past six months, when the average price-to-earnings multiple of the Sensex’s 30 stocks gained around 13% to 21.4 at present, the valuation multiples of a number of agrochemical companies zoomed past swiftly, which marks a re-rating of the industry.
The industry leader United Phosphorous, which was trading around 13 times its profits for the past 12 months six months back, is now commanding a P/E multiple of around 17.3 — a gain of 33%. The biggest beneficiary of rerating of this industry was Sabero Organics and Nagarjuna Agrichem, both of which are on Wednesday trading at P/Es that are 70-80% higher than six months back. Not all the companies have benefited from rerating of the industry, though. Excel Crop Care and Insecticides India are still trading at almost similar valuation, as they were six months back and the change in their market capitalisation comes mainly from earnings growth. Excel Crop Care’s per share earnings are down 6%, while Insecticide India’s earnings have grown 16% in the past six months.
The main reason of this rerating of the industry has obviously been the earnings growth, with most players registering a steady growth despite monsoon related problems. During the September 2009 quarter, which is the most critical quarter for the Indian agrochemical players due to the kharif season, the agricultural production was down due to erratic rains and reduced acreages. However, overall, the agrochemical industry did well, mainly due to the increased liquidity in the hands of the farmers. Interestingly, Punjab Chemicals was one of the largest gainers. Although the company can report profit for the December quarter, it seems far from wiping its slate clean. Other main gainers were United Phosphorous, Sabero Organics and Nagarjuna Agrichem. Meghmani Organics, Excel Crop Care, Rallis India and Insecticides India proved to be the laggards over the past one month.
At present, the expectations of the future performance of the pesticides industry are indeed bright. However, the recent rerating of the industry means there are hardly any hidden gems now. Steady earnings growth prospects and dividends could be the prime considerations, rather than a jump in valuation multiples should be the investors’ aim henceforth.
The industry leader United Phosphorous, which was trading around 13 times its profits for the past 12 months six months back, is now commanding a P/E multiple of around 17.3 — a gain of 33%. The biggest beneficiary of rerating of this industry was Sabero Organics and Nagarjuna Agrichem, both of which are on Wednesday trading at P/Es that are 70-80% higher than six months back. Not all the companies have benefited from rerating of the industry, though. Excel Crop Care and Insecticides India are still trading at almost similar valuation, as they were six months back and the change in their market capitalisation comes mainly from earnings growth. Excel Crop Care’s per share earnings are down 6%, while Insecticide India’s earnings have grown 16% in the past six months.
The main reason of this rerating of the industry has obviously been the earnings growth, with most players registering a steady growth despite monsoon related problems. During the September 2009 quarter, which is the most critical quarter for the Indian agrochemical players due to the kharif season, the agricultural production was down due to erratic rains and reduced acreages. However, overall, the agrochemical industry did well, mainly due to the increased liquidity in the hands of the farmers. Interestingly, Punjab Chemicals was one of the largest gainers. Although the company can report profit for the December quarter, it seems far from wiping its slate clean. Other main gainers were United Phosphorous, Sabero Organics and Nagarjuna Agrichem. Meghmani Organics, Excel Crop Care, Rallis India and Insecticides India proved to be the laggards over the past one month.
At present, the expectations of the future performance of the pesticides industry are indeed bright. However, the recent rerating of the industry means there are hardly any hidden gems now. Steady earnings growth prospects and dividends could be the prime considerations, rather than a jump in valuation multiples should be the investors’ aim henceforth.
No comments:
Post a Comment