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Comprehensive beat in Q4; strong outlook for FY22

Q4FY21 revenues grew 36% YoY to | 471.3 crore (I-direct estimate: | 377.6 crore) amid 73% growth in international business (52% of revenues in Q4) to | 245 crore led by volume growth. The domestic business grew 11% YoY to | 226 crore. Crop protection business increased 38% to 445 crore and seeds business grew 8% to | 26 crore. EBITDA margins were at 3.8% (Idirect estimate: 2.4%) vs. -2.8% in Q4FY20 mainly due to operational leverage. EBITDA profit was at | 17.7 crore (I-direct estimate: | 9 crore) against EBITDA loss of | 9.8 crore. PAT was at | 8.1 crore (I-direct estimate: loss of | 0.4 crore) against | 0.7 crore mainly due to a strong operational performance.

Upcoming capex likely to aid revenue ahead

Out of the earmarked capex of | 800 crore over the next five to six years, the company has been initially incurring crop formulation capex to the tune of | 98 crore and MPP plant at Dahej with total cost of | 105 crore. Both of these plants are expected to get commissioned by H2FY22. Since it has historically managed asset turn of 2.25-2.5x, we expect the same to sustain, going ahead. Thus, this bodes well for future growth outlook. Apart from this, it has also been working on backward integration, which should boost gross margins further down the years.

International business growth likely to improve ahead

The company has debottlenecked Acephate, Pendimethalin, Hexaconazole capacities recently. We believe this would support volume growth for the international B2B business. Further, recent price increase for key molecules along with visibility of price sustainability/improvement in the metribuzin is likely to aid overall realisations further and thereby the business performance in coming quarters. A revival in aviation is also likely to drive PEKK volumes to pre-Covid level in the coming quarters. Apart from this, the company is also looking to foray into innovative CRAMs business, which would drive growth and margins over the long term.

Valuation & Outlook

While Q4FY21 revenues were driven by robust growth in export, continuous improvement in domestic growth and lower base, margins improved due to better operational leverage. Normal monsoon prediction and continuous strong demand is likely to drive FY22 growth. Also, we believe since outlined organic expansion is already underway with clear focus on maintaining/improving IRR profile of the business, it is evident that group operational performance should improve in the medium to long run. Besides this, control on working capital and better allocation of incremental cash should aid return ratios further. We arrive at a target price of | 350 (22x PER of FY23E, unchanged TP). We maintain BUY

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