Govt initiatives easing pressure on farmers: IDFC Sec

As people are settling in with government's decision to ban Rs 500 and Rs 1000 notes, Vijayaraghavan G, Analyst - Agri-inputs, Midcaps, IDFC Securities, says government is taking initiatives to normalise the situation.In an interview with CNBC-TV18, he said that by increasing the withdrawal limit for traders and farmers, who have registered with Agriculture Produce Market Committee (APMC) and even for farmers who have crop loan accounts, government has eased the pressure.He said agri input retailers are helping out farmers by extending credit.He suggested Rallis India, Kaveri Seeds, Dhanuka Agritech and UPL for the top picks.Below is the verbatim transcript of Vijayaraghavan G’s interview to Latha Venkatesh and Nigel D'Souza on CNBC-TV18.Latha: You are particularly interested in the agri sector among other midcaps I understand. Will this space see a temporary downturn fertilisers, seeds etc for want of cash?A: No, really from a demonetisation perspective if you really see for the last one week or so there has been an issue immediately when it got announced. The issue was on two counts, one farmers were not able to sell their produce because half of the APMC markets were almost shut and even wherever it was operational almost the transactions have fallen by 30-40 percent. Again to tell that it is more specific to horticulture crop segments but in some of the other field crops like rice, cotton, pulses or oilseeds they can hold on to the produce because it is not highly perishable.Again the other major initiative which has been taken by the government to ease out the situation like yesterday they have increased the withdrawal limit for traders who have registered with APMC and even for farmers who have crop loan accounts. This to a large extent will help ease out the situation and what happened is like at the village level if you see the agri input retailers are helping out farmers through extending credit because this has always been a practice. At a village level if you see from an agri input dealer and from marginal farmers perspective it is more work on a relatiohsionp and on a dependency basis. So, they will support each other through extending credit.So, we have hosted fertiliser, agri, pesticides and even some of the companies like KRBL to procure from farmers. So, they were saying like initially there was a panic kind of reaction but for the last 2-3 days situation is kind of improving.Nigel: Kaveri Seeds that stock has been in lot of trouble, the stock has halved from the peak. UPL just three years ago it was Rs 130-140 stock, that has done very well. So, what is the pecking order. You mentioned UPL last and Kaveri came higher up, pecking order?A: Yes, it is purely on valuation call. Kaveri if you really see whatever has to go wrong for them in the last two years has gone wrong in the sense one, the acreage has come down and there was this government intervention in pricing which has really impacted them and last year because of drought the production cost has gone up.However, now exactly things are reversing. One, the cotton area is expected to improve because this year if you see the really wide acerage seen a downtick is because of shift towards pulses but the pulses prices have corrected and cotton prices have remained stable. So, relative basis cotton looks much more remunerative from a farmer point of view. So, the acerage is expected to remain stable or rather it should improve next year which will help increase the sales volume in cotton which accounts for 60 percent of the Kaveri Seeds revenue.The seed production cost which we have produced this year and gets sold next year because of good rainfall the yield has been good. So, in that way the production cost also has come down for them which will help improve the margins as well in the next year. That is how I see things turning for Kaveri, that is how we have changed our stance in Kaveri, that is how Kaveri is there.In case of Rallis India domestic business has already turned for them and in case of seeds they are already doing well. Profitability has expanded exports which accounts for one third of their business is also looking up.