Bullish on Coromandel International, Rallis: Emkay Global

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Fertiliser stocks may slip 10-15%: Gujral FY10 subsidy burden seen around Rs 56,000cr: Fert Secy New fertiliser policy: Impact analysis & key beneficiaries ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Emkay Global Financial Services is holding a conference on agriculture input sector. In an exclusive interview with CNBC-TV18, Ajay Parmar, Head - Institutional Research, Emkay Global Financial Services Ltd, gives his view on this sector.

Here is a verbatim transcript of the exclusive interview with Ajay Parmar on CNBC-TV18. Also watch the accompanying video.

Q: Why have you chosen just the input sector? Do you believe that there is more upside for this particular sector?

A: Yes, there is a lot of upside in this sector. But more than that, we would like to go for the sub-segment because it is time that we specialize in one particular area. So agriculture itself is a very vast subject. There are outputs where you can have sugar or rice and so many other products. But what we think that looking at just the theme on the global food security issues where the yield development is going to be the major driver, we feel that agri input is going to play a major role. We did our own study even when the global market was down in 2008. We saw that the valuations of all those agri input companies have never gone down from the M&A prospective. It is not India, I am talking about the global.

Second, I see these companies performing on a financial terms also very well even we had a very bad monsoon. Statistically when the monsoon is bad these companies should not have a good financial numbers. They did really well and I believe that if next year the monsoon is going to be good their performance will be much better. As far as the investor is concerned, I think they will give a better outperformance.

Q: Fertilizers, the policy that was announced by the government while on that day it seem to create a lot of buzz in reality it meant only a 5% increase in the price of urea. The government was pretty clear in its communication that the nutrient base pricing should not differ very much from the prices that have reigned in the current year, so are you really bullish on that sector going by the fact that the noises are not really al that reformist or market oriented as was expected or made out to be?

A: On a macro level if you look at the fertilizer sector it is a subsidized sector. The major concern is that we always believe that government will run the account, if the prices go up it will be on account of the government. This is the first time that the government is given a signal. Although it is a 5%, the increase might be very small, but the direction you can see is that now government wants the farmers also to bear the pain if in case the prices go up.

Second, I think for all these years I have not seen any green fertilizer projects coming up because people were fearing of input not coming that is the gas availability and all. But recently we have seen Zuari Industries coming out with an announcement on the fertilizer projects. So I believe things are changing.

As far as the urea was concerned, I think it was already clearance was there. Now even in the complex people, the regulatory things have changed. So there is a major change happening and it seems that government feels that the agriculture sector or the farmers are now well equipped or they have enough money to see that if the prices move up in fertilizer they will be able to bear it. The major reason is the increase in the Minimum Support Price (MSP). So what government is doing on one side is making them independent on their own. So today MSP prices are almost 30-50% higher form the last 2-3 years. With that money they want the farmers to take the cost.