In this article, we will cover
- Reasons for investing in agriculture stocks
- A comprehensive and well-researched list of the best agriculture stocks to buy
- Factors to consider while compiling the list of the best agricultural stocks
- Risks to consider before investing in Best agriculture stocks
- Watch our video to analyse & pick best agriculture stocks for investments
- A model portfolio to gain exposure to the best agricultural stocks in the Indian market
- Detailed overview of the Best Agriculture stocks
Reasons for investing in Agriculture StocksAgriculture is one of the most important sectors of the Indian economy as it means the livelihood of almost 58% of the workforce in India. The sector accounts for approximately 17.8% of India’s Gross Value Added (GVA). The Indian agricultural sector predominantly acts as one of the pillars of the Indian economy and is woven within the very socio-economic framework of India.Naturally, agriculture and other allied activities are key to domestic consumption. In order to ensure food security and fair share of exports, India has tremendously increased its production in agriculture in variety and volume. And this translates to the change in the agricultural industry significantly impacting the growth of the agrochemical industry, making India one of the biggest consumers of agrochemical products across the globe.The rapidly rising population and ever-increasing need for economic growth along with food production are some of the factors contributing to the growth in this industry. In addition to this, encountering various bottlenecks such as soil degradation, dearth of water supply, scarcity of land due to urbanization and so on are what is further driving the farmers to use agrochemicals products in order to sustain. Deployment of ‘Kisan Drones’ to promote crop assessment, digitization of land records, spraying of insecticides, and nutrients, will greatly benefit the farmers. This has very positive implications for the industry as it provides the necessary push to the agriculture sector. An increase in farmer’s income will result in the boost to farmer’s buying power as well as investment towards better harvest production such as better seeds, crop protection products, tractors, irrigation systems, etc. These are just a few examples which can further boost not only the output but also a farmer’s disposable personal income.In fact, the central governmenthas pumped about Rs. 131,000 crores into agriculture and related sectors, with a special focus on building an export-oriented economy.The agriculture sector is one of the most crucial sectors in the country with large headroom for increasing consumption; the sector has demand for proven and time-tested products such as pesticides, tractors and existing irrigation systems among others. There is also room for innovation with the emergence of new and more efficient farming techniques and products such as biologicals, hybrid seeds, organic fertilizers and pesticides, new irrigation techniques and other upcoming products. Hence, the agriculture business is full of investing opportunities. Investors can choose to invest among companies providing agricultural products and services such as fertilizers (nitrogen, phosphate, and potash, with niche categories sprinkled in), pesticides (which protect plants against insects, fungi, weeds, and other nuisances), seeds, crushing and processing, and livestock.
List of Best Agricultural Stocks to buy - Summary Table
|Sr. No.||Company Name||BSE Scrip Code||NSE Symbol||CMP (as on December 28, 2022)||Rating||Industry|
|1||PI Industries Ltd.||523642||PIIND||3,446||3||Agrochemicals|
|2||Bharat Rasayan Ltd.||590021||BHARATRAS||9,855.00||0.5||Agrochemicals|
|4||DCM Shriram Ltd.||523367||DCMSHRIRAM||863.00||0.5||Chemical Manufacturing|
|5||Coromandel International Ltd.||506395||COROMANDEL||895||3||Fertilizers|
|6||Bayer CropScience Ltd.||506285||BAYERCROP||4,862.00||0.5||Agrochemicals|
|7||Godrej Agrovet Ltd.||540743||GODREJAGRO||474||0.5||Agriculture|
|8||Avanti Feeds Ltd.||512573||AVANTIFEED||393||2||Aquaculture|
|9||Kaveri Seed Company Ltd.||532899||KSCL||520||0.5||Agriculture|
|10||BalrampurChini Mills Ltd.||500038||BALRAMCHIN||397||0.5||Sugar|
|11||Dalmia Bharat Sugar and Industries Ltd.||500097||DALMIASUG||377||0.5||Sugar|
|12||Tata Consumer Products Ltd.||500800||TATACONSUM||781||2||Coffee and Tea|
- Assess the range of products offered by the company as the agriculture sector utilizes a huge variety of products such as fertilizers for different kinds of soil, pesticides for different species of insects affecting specific types of crops. A wider range of product offering is usually positive as many such products are complementary and can be value additive for the company as it can offer a better product mix to customers and sustain healthy profit margins for the company.
- It is critical to determine the locations served as it helps in understanding the way a company is doing its business. It is also critical as seasonality impacts different states and locations differently every year and a company with the right offerings across states not only keeps the revenues consistent for the company, it also helps the company maintain its margins well. For example, even if one state sees less rainfall in a given year causing low farming activity and hence low sale of agri-products, the company can substitute this loss of sales from other states which saw sufficient rains for farming needs. Having exports can further help a company remove any risk from weather related or economic factors faced by India, which would help the company protect its sales.
- Assess the R&D a company undertakes towards developing new products in the agriculture sector. This is important for a company as the agriculture industry sees some level of dynamism constantly with innovation of new and more efficient farming techniques and better products coming out which can not only give the company a competitive advantage over peers, but also contribute to revenue and margin growth. A metric that investors can assess is the R&D as a % of sales which indicates the scale of R&D a company undertakes towards innovation. While a higher R&D as a % sales is not a true barometer of finding better products, it gives a pretty good idea to investors about the capability of a company to find new products and maintain revenue and margin growth.
- Investors need to assess the capacity and scale a company has to produce its products, production efficiency as well as its distribution channel of the company. A larger capacity and a strong distribution channel allow a company to scale their sales as well witness repeat sales among customers. This is a crucial factor as many smaller companies face distribution issues due to which their products may not reach the right customer, thereby hampering growth of the companies. All the companies selected in the model portfolio have exhibited a strong distribution channel and have effective communication with its customers which allows the companies to offer products as per customer needs and ensure revenue growth.
- Investors also need to assess financial strength to determine the sustainability as well as the growth a company can achieve for investors. This can be done by assessing the return ratios of the company such as Return on Equity (ROE%) and Return on Capital Employed (ROCE%). These ratios are crucial to determine the returns generated by the companies on the capital they have invested in the business. A higher ratio indicates higher return generated by the company for stakeholders which is a positive for investors.
- Investors should also look at the cash flows generated by the company which indicates the tangible returns generated by the company. Investors can assess the Operating Cash Flow/EBITDA which allows investors to ascertain a company’s ability to convert operating profits into operating cash flows. A higher ratio of operating cash flows indicates the tangible returns the company generates while a low ratio may be indicative of aggressive revenue recognition practices. Also assess the capital structure of the company to determine the financial obligations of the company and how much of the profits are attributable to the shareholders. To assess this, investors can look at the Debt to Equity ratio of the company. A lower D/E indicates lesser interest obligations and more flexibility for the company to reinvest returns to pursue long term growth or distribute as dividends, either way benefitting the shareholders of the company.
- Investors should also keep an eye out for changes in the regulations surrounding the industry to determine any significant impact on companies. Regulations can include changes in allowable ingredients or chemicals to be used. A company which can dynamically adjust to such changes can better adopt and remain sustainable for the long term while generating positive returns thereby benefiting investors.
Avanti Feeds LtdAvanti Feeds manufactures and sells shrimp feed and exports processed shrimp. It has a total shrimp feed capacity of 600,000 million tonnes per annum (mtpa), of which 60,000 mtpa is in Gujarat and remaining 540,000 mtpa in Andhra Pradesh. Company commands a market share of about 45% in the domestic feed business. Its shrimp processing subsidiary, Avanti Frozen Foods which has an installed capacity of 22,000 mtpa, is one of the leading shrimp exporters in the country. Thai Union holds around 24.21% stake in the company and 40% stake in Avanti Frozen Foods which is among the largest shrimp, fish and pet food manufacturers and processed sea-food producers, with a strong marketing and sales network worldwide across the globe. This strategic partnership provides Avanti with the technical know-how in feed formulation and shrimp processing, and access to its global marketing network. Avanti Feeds has a healthy cash balance of Rs. 61 crores with minimal debt repayment requirementas onMarch 31, 2021. Cash flow from operations continued to be robust at Rs. 383 crores owing to increased scale and robust working capital management which is sufficient to fund dividend payments and modest capex requirements. Revival in shrimp prices in its key market, USA, augurs well for shrimp process/feed business as higher shrimp prices translate to better profitability. Higher volatility in shrimp prices and swings in profitability will affect smaller players in shrimp exports and transfer market share to organized players like Avanti feeds. The company is also exposed to raw material risk but has exhibited an ability to manage raw material price volatility effectively. 15.9% 16.1% as of FY22. To reduce export dependency for sugar and cut imports of fuels, the government preponed its target of achieving 20% ethanol-blending to 2025 (2030 earlier). With an existing capacity of 520 KLPD and capacity addition of 320 KLPD, Balrampur Chini will have the highest ethanol generating capacity of 840 KLPD. Given a sustained increase in ethanol production and steady growth in sugar, Balrampur Chini is expected to deliver a sustained improvement in revenues and margins. Decline in sugar production may impact revenue and act as a key risk. Further, any change in government policies related to ethanol blending would impact the profitability of the company. Another crucial factor is the season, since sugarcane is very sensitive to rain; a low volume of rain can affect the harvest and thereby negatively impact the production of sugar as well as distillery products out of sugarcane. Rising input costs and sugarcane costs can also impact the margins earned by the company.Bharat Rasayan has delivered strong financial performance over the years while delivering a strong Net Profit growth of 27% CAGR and Sales Growth of 16% the past 5 years. The company has delivered a strong ROE of 24%. It has also been growing its operating profit margins from 6% in 2010 to 20% currently, driven by cost optimization and operational efficiency. It trades at fair valuations of 23.3x P/E given the strong growth delivered by the company. Despite the strong growth drivers, Indian agrochemicals industry faces challenges in terms of low awareness among a large number of end users spread across the geography. Managing inventory and distribution costs is a challenge for the industry players in the wake of volatility in the business environment.39.5 which indicates a fair valuation for the company.COVID-19 did not have an adverse impact on the company’s operations, as it falls in the necessary product category, which, in fact, has helped it during the crisis. Further, its Monsanto connection has helped increase its distribution reach, and should add to topline and profitability. The company could also benefit from the nutrient-based subsidy announced by the government recently. Bayer could face a risk from seasonality in India which could affect its growth and sales as a bad year could result in lower demand for fertilisers. The company also faces the risk of farmers not adapting to their hybrid seeds offering, despite them being of high quality.
Risks to consider before investing in Best agriculture stocks
- The government may change regulations around the use of certain ingredients and chemicals which may form a critical part of the product offerings of these companies. A change in regulation can severely impact the revenue earned by the company as the product sales would have to be stopped immediately, and the company may need to come up with a new product to replace the existing one. This could entail high research costs, manufacturing costs and opportunity costs for the company as it would not be able to sell existing products. In extreme cases, a product of a competitor may capture the company’s market share thereby impacting the dominance of the company in that product offering.
- The Indian weather has been very volatile in the past with inconsistent rainfalls across different states of India. In the event of rainfall being lower for a particular year, the farming activity might reduce for a particular type of crop or state which would result in lower demand for fertilizers and pesticides for the given year. This could significantly impact the revenues of the company and affect the overall growth rate.
- While innovation has always been beneficial to the economy and the agriculture industry as well, it may not always be beneficial for every company. An example could be where one company produces a particular variant of fertilizer and the innovation of a new and better version of the said fertilizer could hamper sales of the current fertilizer. Also, if the company is not able to come up with its own version of the new fertilizer, a competitor may capture the market share of the company.
- Financial risks could emerge relating to not having sufficient cash to meet expected obligations, generating lower than expected profits and losing market share. Financial risks may also be caused by increased input costs, higher interest rates, excessive borrowing, higher cash obligations, lack of adequate cash or credit reserves, and unfavorable changes in exchange rates in case of imports made by companies.
- Financial risks could emerge relating to not having sufficient cash to meet expected obligations, generating lower than expected profits, and losing market share. Financial risks may also be caused by increased input costs, higher interest rates, excessive borrowing, higher cash obligations, lack of adequate cash or credit reserves, and unfavorable changes in exchange rates in case of imports made by the company to develop its products.
Watch our video to analyse & pick Best Agriculture Stocks for investments
Model PortfolioIf this is a standalone thematic portfolio of only agriculture specific stocks, you would need a total of Rs. 36,595 for this portfolio as of December 28, 2022.
|Company Name||Weightage||CMP (as on December 28, 2022)||Quantity||Total (Rs.)|
|PI Industries Ltd.||19%||3,446||2||6892|
|Bharat Rasayan Ltd.||27%||9,855.00||1||9855|
|Coromandel International Ltd.||7%||895||3||2685|
|Bayer CropScience Ltd.||13%||4,862.00||1||4862|
|Avanti Feeds Ltd.||13%||393||12||4716|
|Balrampur Chini Mills Ltd.||11%||397||10||3970|
Detailed overview of the Best Agriculture stocks to buy now in IndiaThe table below covers some of the most important factors while evaluating Best Agriculture stocks such as the return ratios – RoE, operating margins, sales and earning growth, market cap, etc.
|Sr. No.||Company Name||BSE Scrip Code||NSE Symbol||CMP (as on December 28, 2021)||Rating||Industry||Market Cap (in Crs)||Promoter Holding||Compounded Sales Growth (5 years)||Compounded Profit Growth (5 years)||Operating Profit Margin (%)||Price to Earnings (times)||Price to Book (times)||EV/EBITDA||Debt to equity (times)||Dividend Yield (%)||Return on Equity (%)||Return on Capital Employed (FY22) (%)|
|1||PI Industries Ltd.||523642||PIIND||3,446||3.0||Agrochemicals||52,278||46.09%||18.00%||13.00%||22.80%||51.60||7.98||34.40||0.04||0.18%||14.70%||17.30%|
|2||Bharat Rasayan Ltd.||590021||BHARATRAS||9,855||0.5||Agrochemicals||4,095||75.00%||16.00%||27.00%||17.50%||23.20||4.90||15.70||0.14||0.02%||23.90%||28.30%|
|4||DCM Shriram Ltd.||523367||DCMSHRIRAM||863||0.5||Chemical Manufacturing||13,464||66.50%||11.00%||14.00%||17.40%||11.60||2.26||6.42||0.27||1.75%||20.60%||24.50%|
|5||Coromandel International Ltd.||506395||COROMANDEL||895||3.0||Fertilizers||26,314||57.50%||14.00%||26.00%||10.60%||13.40||3.45||9.34||0.22||1.38%||26.60%||34.70%|
|6||Bayer CropScience Ltd.||506285||BAYERCROP||4,862||0.5||Agrochemicals||21,849||71.40%||11.00%||16.00%||17.70%||32.70||7.47||22.10||0.03||2.09%||23.70%||30.90%|
|7||Godrej Agrovet Ltd.||540743||GODREJAGRO||474||0.5||Agriculture||9,099||74.00%||11.00%||14.00%||6.77%||25.60||4.06||14.00||0.72||2.05%||19.30%||18.00%|
|8||Avanti Feeds Ltd.||512573||AVANTIFEED||393||2.0||Aquaculture||5,354||43.20%||14.00%||0.00%||6.75%||20.60||2.73||11.80||0||1.63%||11.70%||17.30%|
|9||Kaveri Seed Company Ltd.||532899||KSCL||520||0.5||Agriculture||3,033||57.45%||6.00%||7.00%||24.70%||12.70||2.00||11.20||0||0.77%||14.50%||15.10%|
|10||BalrampurChini Mills Ltd.||500038||BALRAMCHIN||397||0.5||Sugar||8,092||42.42%||7.00%||-5.00%||9.78%||27.40||2.89||15.90||0.18||0.64%||17.30%||16.10%|
|11||Dalmia Bharat Sugar and Industries Ltd.||500097||DALMIASUG||377||0.5||Sugar||3,052||74.90%||12.00%||10.00%||11.20%||17.60||1.22||6.84||0.17||1.09%||13.30%||13.40%|
|12||Tata Consumer Products Ltd.||500800||TATACONSUM||781||2.0||Coffee and Tea||72,542||34.70%||13.00%||20.00%||13.80%||69.60||4.80||37.00||0.09||0.78%||6.51%||9.61%|
- Watch detailed video on small-cap stocks to buy today in India
- What are Small Cap Stocks?
- Our Collection of Best Stocks to Buy
- Penny stocks to Buy Now
- Best Intraday Stocks
- 26 Articles on Best stocks to buy