Sowing Hope
Business Today|December 17, 2017

Agribusiness companies recorded the highest gains in market cap, thanks to government policies. But the sector still faces challenges.

Tripti Kedia
Sowing Hope
The average market cap of a number of companies in agri and allied businesses has risen spectacularly in the last 12 months. Between last October and this September, Escorts saw an extraordinary gain of 164 per cent, rice exporter KRBL of 57 per cent and Kaveri Seeds, 29 per cent. (See Making Hay) “Before last year, agri-based companies got lower valuations because of the higher volatility of their earnings,” says Deepak Jasani, Head, Research, HDFC Securities. All kinds of unexpected factors arose to adversely affect growth – for example, cotton seeds had been showing strong growth of over 12 per cent till 2015/16, but thereafter regulation of Bt cotton prices led to a revenue decline. This year’s kharif season, however, the acreage devoted to cotton increased nearly 19 per cent, from which the seed industry, too, has naturally benefitted. “In the past year, on the one hand, volatility has reduced, and on the other, dividend yields have become attractive, thanks to falling interest rates,” adds Jasani. “As a result, investors started to give agri-companies higher valuations.”

Like cotton seeds, each segment of agribusiness has its boom across the entire sector.

After being choked by El Nino and other factors for a number of years, the monsoons, this year and the last, have been reasonably good, falling just 5 per cent and 3 per cent short of the long period average, respectively. Healthy cash flows have given the better-off farmers enough disposable income to buy seeds in large quantities, apart from farm tools, tractors and more, benefitting those manufacturing them. Companies like Mahindra Agri Solutions and Sonalika International Tractors have seen great sales – Mahindra’s turnover, for instance, is poised to cross ₹1,500 crore this year.

This story is from the December 17, 2017 edition of Business Today.

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This story is from the December 17, 2017 edition of Business Today.

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