IPO Note - India Pesticides Ltd By Nirmal Bang
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BACKGROUND
India Pesticides Ltd (IPL) is an R&D driven agro-chemical manufacturer of Technicals with a growing Formulations business. It is one of the fastest growing agro-chemicals company in terms of volume of Technicals manufactured. Since commencing its operations in 1984, the company has diversified into manufacturing herbicide and fungicide Technicals and active pharmaceutical ingredients (“APIs”). 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.
Objects of the Issue
The issue of Rs 800 cr comprised of Rs 100 cr fresh issue and Rs 700 cr Offer for Sale. The company intends to utilize the funds for working capital needs.
Investment Rationale
* R&D backed products
* Diversified portfolio
* Favorable Industry Dynamics
* Strong relationships with customers
* Healthy Financials
Valuation and Recommendation
Given the favorable China+1 policy, good monsoon, low per capita usage in India, increasing population and declining acreages, Indian agrochemical industry is in sweet spot. IPL intends to undertake a number of strategic initiatives including expansion of its existing manufacturing capacity that will allow it to benefit from economies of scale and improve process efficiency in its manufacturing process.
The company has grown at a CAGR of 37% over FY18-21 which is fastest among the peer. The company commenced manufacturing of Technicals for herbicides in 2018 that are exported which has led to an increase in its EBITDA margins from 19.5% in FY20 to 28.2% in FY21. The management reiterated that the improvement in margins is structural and likely to continue in future as well. IPL stands out among the peer group with robust ROE, fastest sales growth and one of the highest margins. Considering the healthy balance sheet, robust revenue growth and strong cash flow generations we have a positive view on the company. At upper band of Rs 296, the PE comes to 25.4x FY21 earnings, which looks attractive. We recommend “Subscribe”.
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