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Best Agriculture Stocks in India

Best Agriculture Stocks in India

The agriculture industry in India is one of the oldest industries in India. It has been providing food to the people of India for centuries. It is also the largest employer of workforce within the country.

Today, it comprises of enterprises or companies that are involved in cleaning, processing, storing or packing various types of products that are mainly obtained from agricultural production.

The sector has experienced buoyant growth in the past two years. It accounted for a sizeable 18.8% (2021- 22) in GVA (gross value added) of the country registering a growth of 3.9% in 2021-22.

With its strength in agriculture, India has also become a major contributor to the global food supply.

As per figures released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S), the agricultural exports have grown by 19.92% during 2021-22 to touch US$ 50.2 bn.

The growth rate is remarkable as it is over and above the growth of 17.7% at US$41.9 bn achieved in 2020-21 and has been achieved in spite of the logistical challenges during the pandemic.

Porter’s Five Forces Analysis of the Agriculture Sector in India

Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every industry.

These are barriers to entry, bargaining power of suppliers, bargaining power of customers, threat of substitutes and competition within the industry.

A change in any of the forces normally requires a company to re-assess the marketplace.

Let us have a look at how these five forces shape the agriculture sector -

#1 Barriers to Entry

The most attractive segment is one in which barriers to entry are high as they restrict the threat of new entrants.

Conversely if the barriers are low, the risk of new companies venturing into a given market is high.

In the agriculture sector, barriers to entry are high, as it requires high capital investment, technical expertise and know-how.

#2 Bargaining Power of Suppliers

The bargaining power of customers is the ability of suppliers to put the firm under pressure. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

This is low in the agriculture industry, due to the number of sellers in the open market.

#3 Bargaining Power of Customers

The bargaining power of customers is the ability of customers to put the firm under pressure. It is high if buyers have many alternatives and low if they have few choices.

In the agriculture sector, the bargaining power of customers is low, as there is a minimum support price set by the government for certain agriculture products. The minimum support price is a guaranteed price for the produce from the Government.

#4 Competition

For most industries, having an understanding of the competition is vital to successfully marketing a product.

The competition in the agriculture industry is high, due to a large influence of the unorganized sector in the industry.

Existence of brand loyalty in certain products towards existing firms such as Amul in case of butter, limits competition in these products.

#5 Threat of Substitutes

A substitute product uses a different technology to try to solve the same economic need.

This is low for the agriculture industry as there is no substitute for products such as milk, fresh fruits and vegetables.

Porters Five Forces Analysis of the Paper Sector in India

Source: Equitymaster

When to Invest in Agriculture Stocks

The best time to buy stocks from this sector is when companies that have strong fundamentals are trading at attractive valuations.

Key Points to Keep in Mind While Investing in Agriculture Stocks

Here are some key points to take note of before you invest in agriculture stocks.

#1 Weather Risk

Weather is the biggest risk where agriculture stocks are concerned.

Of the total annual crop losses in the agriculture sector, many are due to direct weather and climatic effects such as drought, flash floods, untimely rains, frost, hail, and storms.

Bad weather also interrupts business processes, supply chains and consumer movements, among other things.

This can impact the agricultural yield which in turn can impact the performance of the business and the stock price.

#2 Crude Oil Prices

Crude oil prices have a constant effect on the agriculture industry.

Rapid increases in the price for fuel can have a devastating effect on logistics costs, and a sudden fall could result in short-term boosts in profit and a surge of competition within the market to provide consumers with the lowest price.

Hence, look for companies that have the ability to pass on these costs and restructure or strategize their operations to ensure continued profit.

Also, look for companies that hedge crude prices with derivative contracts.

#3 Investment in Technology

Experts believe the technological revolution in agriculture sector might be the biggest revolution after the green revolution.

Agritech, as the word suggests, is a combination of agriculture and technology. It refers to the use of technological innovations in agriculture to increase yield, quality, efficiency, and profitability.

Therefore, when investing in agriculture stocks look for companies that are investing heavily in technology. Estimates show that India's Agritech industry has the potential to reach about US$ 24 bn in revenue by the year 2025, with current penetration being only 1%.

#4 Profitability of the company

Profitability is the primary goal of all business ventures. Without profitability the business will not survive in the long run. So, measuring current and past profitability and projecting future profitability is very important.

Here’s a list of top agriculture companies in India based on their consolidated net profit.

Company Name Net Profit (Rs in m) Net Profit Margin (%)
Tata Consumer Products Ltd. 8,858 8.7
Balrampur Chini Mills Ltd. 5,147 9.3
Gujarat Ambuja Exports Ltd. 4,754 10.2
Triveni Engineering & Industries Ltd. 3,822 7.8
Dalmia Bharat Sugar And Industries Ltd. 2,953 9.8
E.I.D. - Parry (India) Ltd. 2,835 6.7
Kaveri Seed Company Ltd. 2,089 21.9
Dhampur Sugar Mills Ltd. 1,470 6.7
CCL Products (India) Ltd. 1,272 14
Dhampur Bio Organics Ltd. 1,036 6.6
Tata Coffee Ltd. 1,018 9.9
Source: Equitymaster
Data as of March 2022

#5 Debt to equity (D/E) ratio

A company uses both equity and debt to run a business. However, the amount of debt it uses indicates its fixed obligations. Higher the leverage, higher will be the fixed charges such as interest expense which will lower the profitability.

One must look for a debt to equity ratio of one or less than one.

Here’s a list of top agriculture companies in India with a low debt to equity ratio.

Company Name D/E Ratio
Indag Rubber Ltd. 0
Kaveri Seed Company Ltd. 0
Tata Consumer Products Ltd. 0.07
Gujarat Ambuja Exports Ltd. 0.13
Dhunseri Tea & Industries Ltd. 0.14
E.I.D. - Parry (India) Ltd. 0.15
Andrew Yule & Company Ltd. 0.18
Warren Tea Ltd. 0.18
B&A Ltd. 0.21
Dalmia Bharat Sugar and Industries Ltd. 0.35
Kanco Tea & Industries Ltd. 0.39
Source: Equitymaster
Data as of March 2022

#6 Return on Capital Employed (ROCE) ratio

Along with a low debt to equity ratio, a one must look for a high return on capital employed (ROCE).

Return on capital employed measures how much profits the company is generating through its capital. The higher the ratio, the better.

An ROCE of above 15% is considered decent for companies that are in an expansionary phase.

Here’s a list of top agriculture companies in India with more than 15% in ROCE.

Company Name ROCE (%)
E.I.D. - Parry (India) Ltd. 39.6
Gujarat Ambuja Exports Ltd. 30.7
B&A Ltd. 29.7
Bombay Burmah Trading Corporation Ltd. 24.5
Pix Transmissions Ltd. 24.1
Simran Farms Ltd. 23.8
Triveni Engineering & Industries Ltd. 19
Kaveri Seed Company Ltd. 17.6
K.M. Sugar Mills Ltd. 17.6
Harrisons Malayalam Ltd. 15.8
Balrampur Chini Mills Ltd. 15.8
CCL Products (India) Ltd. 15.7
Source: Equitymaster
Data as of March 2022

#7 Valuations

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

The commonly used financial ratios used in the valuation of agriculture stocks are -

Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

To find stocks with favorable P/BV Ratios, check out our list of stocks according to their P/BV Ratios.

Price to Earnings Ratio (P/E) - It compares the company’s stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

To find stocks with favorable P/E Ratios, check out our list of stocks according to their P/E Ratios.

#8 Dividend yields

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

For more details, check out our list of top agriculture stocks offering high dividend yields.

Top Agriculture Stocks in India

The top agriculture stocks in India can immensely benefit with so many factors positively affecting the industry.

Here are the top stocks in India which score well on crucial parameters.

#1 Kaveri Seed Company

#2 CCL Products

#3 Gujarat Ambuja Exports

Best Sources for Information on the Agriculture Sector

Department of Agriculture & Farmer Welfare -

Indian Brand Equity Foundation Agriculture & Allied Industries Sector Report -

So there you go. Equitymaster's detailed guide on the best agriculture stocks in India is simple and easy to understand. At the same time, it offers detailed analysis of both the sector and the top stocks in the sector.

Here's a list of articles and videos on the agriculture sector and top agriculture stocks in India. This is a great starting point for anyone who is looking to explore more about agriculture stocks and the agriculture sector.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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