LONG TERM INVESTMENT CALL

27-Aug-11 Background India with a population of 1.17bn, growing at 10 yr CAGR of 1.5% per annum, is a large and growing market for agri food products. Per capita income in India has increased at an average of 5.4% per annum (at constant prices) during the same period. However, the production of food grains has remained stagnant with a nominal 1% growth, creating a massive gap between production and consumption of food grains. On per capita basis, food production has dropped from 207gms to 185gms, creating trade deficit in cereals, pulses & oilseeds. Post green-revolution India has faced multiple food deficits due to uncertain monsoons and low crop yields. The country which produces 16% of the global food grains production has one of the lowest crop yields in the world. Indias crop yield of sugarcane, rice, wheat, pulses and oilseeds is less than half of the best of the world (as shown in the chart below). Lack of adequate knowledge and sufficient funds has hindered the farm yield in the country. But, consistent efforts by the government and private sector have helped in reviving the growth of agrochemical industry. Improvement in irrigation infrastructure has made it possible to sow multiple crops in a year in certain areas of the country (there by improving the agrochemical consumption). Strong initiatives in agri-education are also taken by the private sector to push new products and better farm practices in the farmer community. Agriculture productivity across Countries (Kg/Ha) Product-wise Industry breakup

Source: FAO, Unicon Research

Agrochemical segment includes products like insecticides, fungicides, herbicides, etc. Indias agrochemical usage stood at 0.6 kg/ha, much below international standard. (India produces 16% of the food grains in the world but consumes only 2% of the total agrochemical production.) Hence, considering the importance of food security we expect major investments in the buzzing space. Overview Indian agrochemical industry is the fourth largest market in the world with a total estimated market size of USD 1.4bn, after the United States, Japan, and China. Of this, ~50% market share is held by MNCs and the rest by Indian companies who are largely into off-patent generic formulations. Indian agrochem industry (USD 1.4bn in size) is expected to grow at 8-10% compared to 3.6% expected from global market (USD 43bn) till 2014 (Domestic industry grew by 11% in 2009). 40 ingredients are going off-patent by 2013, which will throw up opportunities for existing established players. Indian agrochemical market is dominated by Insecticides with 58% market share, followed by herbicides and fungicides with 21% and 19% share respectively. Nearly 50% of the total pesticide produced is consumed by only two crops i.e. paddy and cotton.
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27-Aug-11

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27-Aug-11 Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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