Fresh worries for agrochemical majors as govt mulls ban on 27 chemicals

Farmers pluck flowers in an orchard during ongoing COVID lockdown in Nadia district. Photo: PTI
The Street sentiment on agrochemicals' manufacturers was impacted on Tuesday, following news that the government is considering banning 27 agrochemicals. Analysts say, these are in addition to the 8 formulations that are to be banned from December 2020. Stock prices of UPL, Coromandel International, Rallis India and Sumitomo Chemical, thus, fell between two and 9.6 per cent on Tuesday, with UPL emerging as the biggest loser.

Analysts say, chemicals being considered for ban form a significant part of the portfolio, both exports and domestic sales, of many players. For instance, agrochemicals like 2, 4-Dinitrophenol, Chloropyrifos Mancozeb, Acephate, and Pendimethilin form a significant portfolio of UPL, Sumitomo, Coromandel, Atul Ltd and Rallis. Since the move can impact 60-70 per cent portfolio of some companies, the Street concerns are bound to get aggravated. An analyst at a domestic brokerage says that though management replies and inputs are awaited, elementary assessment of the situation in his view is a negative for the entire agrochemicals pack.

Analysts, however, also say that the government is still in process of deciding and will work on data provided by companies. Further, being a draft order it can be challenged by the industry body too.

Experts point out that the government committee formed earlier continues probing chemicals which are banned in other countries and hence need to be banned in India. At first point though, the committee needs be clear whether they are looking at insecticides or herbicides. Phasing out of herbicides cannot be sudden. Further, the list includes some chemicals that are banned only in few countries. For instance, Mancozeb is banned only in Saudi Arabia. Besides, the move comes at a time

when government is promoting make in India. Hence, at such time banning indigenously produced chemicals does not make sense. So, experts are of the view that the government committee may re-look at its stance.

Nav Bhardwaj at Anand Rathi Securities says that the steep correction in stocks was a knee-jerk reaction as the Street starts factoring in the worst-case scenario.

Meanwhile, companies will also be reworking their portfolio, suggest analysts. Companies have in the past too successfully diversified their portfolios and Rallis India is one example, point out analysts. Thus, the actual impact may be lower, says Amit Khanna, Head of Research at Dolat Capital, who however believes that the overhang may remain on stock prices till clarity emerges.

This is in contrast to the firm Street sentiment seen towards agrochemicals majors so far, due to expectations of good Kharif prospects and normal monsoon predictions.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel