Bullish on agri space; top picks Coromandel & Rallis: PL

Despite the downsides a shortfall in monsoon brings to the economy, especially the agriculture sector, Prabhudas Lilladher is bullish on agri companies.

At the sidelines of their agri conference, Rahul Jain and Manish Mahawar tell CNBC-TV18 that any dips in the short term should be used to buy into companies. “In the longer term perspective, for the next two-three years, we feel this could be an opportunity for investing in to this agri space,” said Jain. Mahawar goes on to say that the negative impact of IMD cutting the long term average forecast of rainfall on companies cannot be immediately determined because it was still the early days on monsoon. Prabhudas Lilladher’s top picks in the space are Coromandel and Rallis India. Below is an edited transcript of their interview with Gautam Broker and Latha Venkatesh. Also watch the accompanying video. Q: We had this statement from the IMD saying that rainfall this time could be lower. Which companies do you think will benefit and which ones you think could be losing because of that? Also, which companies are you most bullish on at this point? Jain: We have been bullish on the agri space as such and for a longer term perspective the companies will really do well. There is a short term fear in terms of monsoons not being to the normal, and we have seen that in the stock prices also. So in the short term there is a risk towards the downside because most of these agri companies have a domestic focus, baring a few. Monsoon being lesser than the normal, around 96% normal long term average, will affect companies in the short term. But in the longer term perspective, for the next two-three years, we feel this could be an opportunity for investing in to this agri space. Q: Is this cut in the long term average extremely negative or is the market worrying a little too early? The IMD has cut the monsoon forecast to 96% from 99% of the long term average. Mahawar: If you look at the monsoon rainfall last week, it is almost 26% lower than normal. We are at the start of the season right now, so impact of this will not be able to ascertain right now; maybe we have to wait for next 15-20 days. Q: What is the investor sentiment in your conference itself? Are you getting a feeling that people are beginning to look at valuations - is there desire to buy? Mahawar: The investor interest is quite good in the conference. If you look at the last two-three years, basically all the companies have done pretty well. But if you look at the last sic-eight months, companies have not performed because there is some demand problem in the industry right now. So long term we are very positive and investors are still positive on the stocks. Q: We have recently had MSP increases in the Kharif crop by 20% to as high as 50%. How does this impact the farmers and what kind of impact it could have on agri companies? Do you think this is been done because the government is expecting a delay in the monsoons? Jain: No I think one basic reason of this MSP increase was because of the increase in input prices. So yes this is a welcome measure in terms of farmers having a higher income in terms of their hands. This will augur well for the industry as well because it will lead to an increased use of pesticides and agro chemicals, so that is in general good for all these agri companies. Even the rural consumption probably could increase. The MSP price was basically to counter affect the input cost increases, and it’s a welcome measure as far as the Indian agri industry is concerned. Q: Do you have any favorites in this space? Jain: We have been in general in long term investors a long term bullish on Rallis India. We continue to be quite bullish on Rallis in the longer term perspective. In the short term, blips or short term falls offer a good opportunity to the long term investors, typically the large mutual funds and the insurance companies, to accumulate stocks. Agri companies in last three-four years have delivered about 20% plus topline and bottomline growth, and in the next two to three years we will surely see that kind of growth coming back. Coromandel also features among our top picks on a longer term perspective. We surely are bullish on these two companies as far as the next two to three years perspective goes.