Indian agrochemical companies show resilience

After delivering spectacular growth in the last decade, the Indian agrochemical industry experienced several challenges in 2023, from slowing global demand and crop-related issues due to erratic monsoons affecting the whole agrochemicals sector to the dumping of Chinese chemicals in the market, which led to reduced price realisations. The industry's struggles were compounded by the rising energy cost due to the Russia-Ukraine war, which further squeezed profit margins. These factors collectively brought down the stock returns of the agrochemical companies compared to the broader market in the last year. Signs of recovery However, despite these challenges, the industry shows some signs of recovery. A major positive development is the reduction in gas prices. In addition, there are 'green shoots' signalling an improvement in global demand. This can be attributed to the 'China plus one' strategy favouring countries like India. Furthermore, the fundamentals of the Indian agrochemicals industry remain strong. As a result, the industry's future prospects look promising. What do our ratings say? We used the Value Research Stock Ratings tool and analysed the top 15 companies (by market capitalisation) in the chemical sector that are involved in pesticides, fertilisers, and diversified chemical businesses. Our analysis found that most of the larger companies retained their high-quality scores. However, three companies - Vinati Organics , Fine Organics , and Atul - experienced negative returns last year but still retained a quality score of 9 and 10 and an overall stock rating of 4 or higher. These ratings indicate the strong fundamentals of these companies despite short-term events in the global market. Stock ratings of chemical companies Eleven companies have a rating of at least four Comapny Quality score Growth score Valuation score Stock rating 1Y return (%) Coromandel International 10 5.2 5.3 5 39 Deepak Nitrite 8 6.4 3.8 4 24.4 Tata Chemicals 6 6 6.4 4 18.8 DCM Shriram 9 5.1 3.1 4 14.6 Bayer CropScience 9 7.1 4.6 5 12.1 BASF India 8 6.5 4 4 9.5 SRF 7 6.5 3.4 3 7.6 Aarti Industries