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India Pesticides Ltd (IPL) is one of the leading agro-chemical manufacturer of Technicals (79% of FY21 sales) with a growing Formulations business.

Leading manufacturer of Technicals with diversified portfolio:

IPL is the sole Indian manufacturer of five Technicals and among the leading manufacturers globally for Captan, Folpet and Thiocarbamate Herbicide, in terms of production capacity. Both Technicals and Formulations portfolio are well diversified among fungicides/herbicides/insecticides along with APIs (10% of revenue); thus de-risking its business model. IPL derives 57% (FY21) of its revenue from exports while top 10 customers also contribute 57% of sales.

Strong growth aspects:

Global agro-chemicals market is expected to grow at 7% CAGR to USD86bn by 2024. Of this Technicals/Formulations are expected to grow at 6%/7% CAGR. Technicals in India which is strongly driven by export led demand and contract manufacturing, is expected to grow at 8% CAGR. With China+1 strategy, it opens huge opportunity for Indian players. IPL plans to tap this opportunity by manufacturing complex off patented technicals, wherein 19 Technicals are expected to go off-patent between CY19-26 (opportunity of >USD4.2bn). Simultaneously it plans to grow its formulation segment as well.

Robust Financials:

Over FY19-21, SBPFL’s Revenue/EBITDA/PAT grew at a robust CAGR of 38%/68%/75% while EBITDA margins expanded 905bps to 28.2%, driven by improvement in yield. Strong R&D and mostly localized raw material sourcing (~60%) helped in cost optimization. Segment-wise, Technicals/Formulations revenue grew at a CAGR of 41%/ 28% (FY19-21). It’s almost a debt free with superior return ratios - RoE/RoCE of 36%/34% (FY21).

Issue Size:

The INR8bn IPO consists of OFS of INR7bn and fresh issue of INR1bn which would result in promoter’s stake reducing to 72.0% post-IPO. The funds will be utilized to fund working capital requirement of INR800mn, with the balance reserved for general corporate purpose.

Valuation & View:

We like IPL given its presence in fast growing agrochemical space, diversified product portfolio and robust financials. Strong R&D, long term relations with MNCs, cost competitiveness and extensive distribution network are some of the other key positives. Expanding product portfolio, growing customer base and increasing wallet share of existing customers can help IPL maintain its growth momentum. The issue is reasonably valued at 25.3x FY21 P/E on post issue basis, vis-à-vis peers (avg. peer P/E of 36.4x), while it enjoys higher RoE of 36% (avg. peer RoE of 21%). Hence, we recommend Subscribe.

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