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An Export-oriented, R&D driven agrochemical company…

India Pesticides Ltd (IPL), incorporated on December 13, 1984 at Bareilly, Uttar Pradesh, is an R&D driven agrochemical manufacturer of Technicals (contributes ~79% to total FY21 revenue) with a growing Formulations business. IPL is the sole Indian manufacturer and one among the leading manufacturers globally of five Technicals like Captan, Folpet and Thiocarbamate Herbicide, in terms of production capacity. (Source: F&S Reports). As of FY21, 56.7% of total revenue is generated from exports to over 25 countries. IPL has two manufacturing facilities located at Lucknow & Hardoi in Uttar Pradesh, India with a combined installed capacity of 26,000 MT for Technicals and Formulations with a utilisation rate of 77% and 73% respectively in FY21.

* The global agrochemicals market is valued at US $ 62.5 bn (2019) & forecasted to reach US $ 86 bn by 2024 growing at a CAGR of 6.6% aided by increasing demand for food security accompanied by rising population.

* IPL is one of the fastest growing agrochemical companies in terms of volume of Technicals manufactured reaching more than 75% plant utilisation rate in FY21. (Source: F&S Reports).

* Enjoys strong customer base including major crop protection players like Syngenta Asia Pacific Pte.Ltd, UPL ltd. etc. As of FY21, ~57% of revenue is contributed from its top 10 customers.

* Has strong product portfolio with registrations & licenses for 22 agrochemical technicals, 125 formulations for sale in India, 27 agrochemical technicals & 35 formulations for exports.

* Revenue & PAT grew at a CAGR of ~38% and ~75% over FY19-FY21 led by increase in exports, higher demand for agrochemical technical products & better operating performance.

* IPL enjoys superior EBITDA margins (28%) & PAT Margins (27%) in FY21 led by economies of scale, competitive pricing and higher yield from strong R&D.

* The company has a healthy balance sheet with D/E ratio of 0.02x as of FY21. Moreover, the return ratios RoE and RoCE remain healthy at ~28% & ~17% (3-year Avg.).

* IPL is well positioned to capitalize on opportunities in agrochemical sector backed by proposed capacity expansions, R&D capabilities and adoption of China plus one strategy by global companies.

* At the upper price band of Rs.296, IPL is available at a P/E of 25.4x (diluted) which appears to be reasonably priced. We assign a “Subscribe” rating for the issue on a short to long-term basis considering strong R&D, positive agrochemical sector outlook, negligible debt, healthy margins and return ratios of the company.

Purpose of IPO

The offer comprises of the Fresh Issue and the Offer for Sale. The proceeds from the offer for sale will go to the selling shareholders, while the amount received from the sale of fresh issue will be utilized for funding working capital requirements and general corporate purposes.

Key Risks

* Increasing awareness towards organic farming by the usage of bio-pesticides than chemical based.

* As of FY21, Top 10 customers contribute ~57% of total revenue. However, IPL intends to grow its customer base by expansion plans & product diversification going ahead.

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