Seeds for a bumper harvest | Value Research With Rs 86,500 crore allocated to irrigation and the government aiming to double farm income by 2022, agriculture-oriented companies stand to gain

Seeds for a bumper harvest

With Rs 86,500 crore allocated to irrigation and the government aiming to double farm income by 2022, agriculture-oriented companies stand to gain

Seeds for a bumper harvest

The agriculture sector is one of the top gainers of this year's budget. The government announced a slew of proposals that are aimed to improve credit flow to farmers, increase irrigation acreage and lead to overall increase in farm incomes. Here are some of the top budget proposals aimed at turning agricultural fortunes around.

In a bid to push irrigation, the total outlay under the Long Term Irrigation Fund, set up under NABARD, has been doubled from Rs 20,000 crore (last year) to Rs 40,000 crore. Also, the allocation to the Pradhan Mantri Krishi Sinchai Yojana has been increased from Rs 5,200 crore (last year) to Rs 7,400 crore. The total irrigation allocation stands at Rs 86,500 crore over the next five years. Separately, a dedicated micro-irrigation fund amounting to Rs 5,000 crore has been set up.

The government's increased focus on irrigation is likely to result in higher yields. This will benefit agri-input companies in the long run.

The government set a target to double farm income by 2022. MGNREGA allocation is up from Rs 47,500 crore to Rs 48,000 crore. Crop-insurance-scheme allocation stands at Rs 9,000 crore compared to Rs 5,500 crore (Rs 13,240 crore with arrears) last year to cover 40 per cent of cropped area by FY18 and 50 per cent by FY19. Interest subsidies to the tune of Rs 15,000 crore have been announced.

The above measures to enhance farm income are expected to benefit farmers, who are likely to have higher disposable incomes. Also, expected to get a fillip are agri-input companies, which gain when disposable incomes are up.

Two stocks that stand to gain from the budget proposals include the following:

Jain Irrigation
Jain Irrigation is the country's largest micro-irrigation company, with a market share of 55 per cent (Religare Securities estimates). Besides micro irrigation, the company is involved in a number of ancillary businesses like PVC pipes, HDPE pipes and agri-inputs, among others. Jain Irrigation stands to gain from the government's initiative to increase micro irrigation. This especially when the penetration of micro irrigation in the country remains at a paltry 3.5 per cent of the total irrigated area.

Watch out for debt on the books, which stands at Rs 4,425 crore (FY16), taking the debt-equity ratio to 1.8 times. The company has indicated that it would bring down its debt by Rs 300 crore by the end of FY17. It recently sold dollar bonds worth $200 million to repay existing secured debt at a lower cost.

Rallis India
The government's objective to create more wealth in the hands of farmers' augurs well for agri-input companies like Rallis. More disposable incomes mean farmers are more amenable to buying agri inputs. This is where Rallis stands to gain. It is one of the top agri-input companies operating in the Indian market, with presence across the entire range - from seeds and nutrients to organic manure and crop-protection chemicals. The company has a strong recognised brand. It has one of the largest distribution networks among agri-input companies. It is present across verticals and is a net-cash company. New product launches and traction in the seeds business are expected to drive revenues in the years ahead. The company is debt-free, with an estimated net cash of Rs 160 crore (FY17E, ICICI Securities).

This article is part of a series called Winners of the 2017 Budget.

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