India Pesticide IPO: SWOT Analysis

 

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About India Pesticides

• India Pesticides was incorporated in 1984 and it is one of the leading agrochemical manufacturers in India.
• The company operates in two business verticals: Formulation and Technicals. The company also manufactures active pharmaceutical ingredients (APIs). They have recorded 37% YoY growth in Technicals manufacturing (by volume) between Fiscal 2020 and Fiscal 2021. 
• IPL is the only company in India that manufactures Technicals like Folpet, Thiocarbamate, and Herbicide (in terms of production capacity). It manufactured 15,003 MT of Technicals in the Apr-Mar 21 period. 
• The company has a strategic focus on R&D. Its R&D capabilities include two well-equipped in-house laboratories registered with the DSIR.
• The Technicals that the company manufacturers are mainly exported, of its total revenue, 56% comes from export. 
• The company exports its product to 25 different countries including Australia and other countries in North and South America, Asia as well as Europe.
• IPL has registrations and licenses for 22 agrochemical technicals and 125 formulations for sale in India, and 27 agrochemical technicals, and 35 formulations for export purposes. 

Products

• Under Technicals, the company produces Cymoxanil Technical, Captan Technical, Ziram Technical, and Folpet Technical as fungicides. Herbicides produced are Prosulfocarb Technical and Thiocarbamete Family.
• Under formulations, the company has a number of products under Acaricide, Fungicides, GRowth Regulator, Insecticides.
• The two APIs company produces are Anti-Scabies Drugs and Anti-Fungal Drugs.

Peer Comparison

• The Indian agro-chemicals industry is fragmented in nature and IPL faces competition from different domestic and global manufacturers for different products that they manufacture.
• The listed peer companies of India Pesticides include Bharat Rasayan, Dhanuka Agrotech, UPL, Rallis India, Sumitomo Chemical India, PI Industries, and Atul India. 
• As seen in the table below, India Pesticides has a much lower Revenue in absolute terms as compared to larger peers such as UPL, PI Industries and Atul Ltd. 
• The company has reported a healthy RoNW (Return on Net Worth) of 35% in the previous fiscal.

Financials

• India Pesticides has shown a strong growth in topline as well as bottomline. The Revenue from Operations has grown at a 39% CAGR to Rs 649 crore in FY21. Profit after tax has tripled from Rs 43.92 crore in FY19 to Rs 134.53 crore in FY21. 
• The company earns a major chunk of its revenue from the Technicals vertical (78%). The remaining 21% is through Formulations (22%) in FY21.  Technicals are primarily exported. In terms of geographical split, India Pesticides earns 56% of revenue from the export market and 44% of revenue from the domestic market.
• India Pesticides has also been able to show very good growth in its Return Ratios and Margins. EBITDA margin has expanded from 21% in FY18 to 29% in FY21. 
• IPL's Return on Equity (RoE) for Fiscals 2019, 2020 and 2021, was 23.46%, 27.48% and 34.63% respectively. The company has shown good growth in terms of RoE in the last three years. The RoCE has also been in the range of 32- 45% over the last three years. 
• One of the key concerns is the (Cash Flow from Operations)/EBITDA at 45%, as compared to the industry average of 75- 80%.
• India Pesticides has paid a dividend at the rate of 20% for FY19 and FY20 and at 110% for FY 21. The management is confident of following a prudent dividend policy going forward.

About India Pesticides IPO

Issue open: 23rd June - 25th June 2021

Price band: Rs 290 - 296 per share

Issue Size: Rs 800 crore (Fresh Issue of Equity Shares aggregating up to Rs 100 Crore and Offer for sale aggregating up to Rs 700 Crore) 

Reservation: QIB 50%, Retail - 35%, NII 15%. 

Bid lot: 50 shares, and in multiples of 50 shares

TRADEX Recommendation

India Pesticides has reported a strong growth in topline and bottomline over the last three years, even as the agrochemicals industry witnessed good tailwinds. The tailwinds include India’s prominent rank (4th globally) in agro-chemicals production, and huge rise in demand due to growing population. The ‘China plus one’ strategy, which seeks to reduce dependency on China, is also boosting demand for the company’s products. 

As a result, India Pesticides has grown to become one of the fastest growing agro-chemicals companies in terms of volume of technicals manufactured in India. 

At the higher end of the price band, India Pesticides IPO is attractively priced at 25 times FY21 earnings. Peers including Rallis India (33 times), PI Industries (79 times), Sumitomo (79 times) are trading at much higher valuations. The company also ranks better than these peers in terms of return ratios. 

Given factors such as healthy topline and bottomline growth, robust outlook due to industry tailwinds, strong margins, good return ratios and attractive valuations, we remain positive on the prospects of the issue. But we Advise you to do your own research before making any investment.