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India Pesticides Ltd (IPL) is an R&D driven agro-chemical manufacturer of Technicals with a growing Formulations business. As per an F&S report, it is among the fastest growing agro-chemical companies in India in terms of volumes in FY20. IPL is also the sole Indian manufacturer and among the top five manufacturers globally for several Technicals, such as Folpet and Thiocarbamate Herbicide.

The business verticals of IPL include:

* Technicals - Fungicide Technicals, Herbicides Technicals;

* Formulations - Formulations of insecticides, fungicide and herbicides, growth regulators and Acaricides;

* APIs – substances used for manufacturing drug products.

Technicals & APIs: IPL manufactures generic Technicals used in the manufacture of fungicides, herbicides as well as APIs with applications in dermatological products.

Formulations: It sells various formulations of insecticides, fungicides and herbicides, growth regulators and Acaricides, which are ready-to-use products. As of 1HFY20, IPL manufactures over 30 Formulations

Over FY19-21, IPL’s revenues/ EBITDA / PAT grew at a CAGR of 38.0%/ 67.5% / 74.7% to Rs.649.0 cr / Rs.183.1 cr / Rs.74.7 cr, respectively. It derives most of its revenues from exports, which can be seen from the fact that exports contributed to 62.1% and 65.7% of the total revenues in FY20 and 1HFY21, respectively. The company’s Technicals are exported to over 20 countries while the formulations products are primarily sold domestically, through its extensive network of dealers and distributors.

Valuation

At the upper band of Rs 296, the company is valued at 32.1xFY21 PE on a post issue basis.

* Key highlights

Strong R&D and product development capabilities

IPL has substantial experience in undertaking R&D activities as part of its manufacturing operations. The R&D team helps in identification of appropriate complex Technicals that are suitable for commercialization. The R&D team comprises PhDs, masters and graduates in chemistry and a biotechnological engineer. The company has two well-equipped R&D laboratories, each of which is registered with the DSIR (Department of Scientific and Industrial Research).

The company’s ability to manufacture complex products is among the key factors that has contributed to its growth over the years. Since 2018, the R&D efforts have resulted in the development of processes for products that are not highly toxic and commercialization of 3 Technicals, the sales of which contributed to 39.4% and 55.4% of revenue from operations in FY20 and 1HFY21 respectively. The company is currently in the process of developing processes for certain Technicals, including two fungicides, two herbicides, two insecticides and two intermediates.

Diversified portfolio of niche and quality specialized products

The company has diversified its product portfolio over the years and has grown into a multi-product manufacturer of Formulations, herbicide and fungicide Technicals as well as APIs. This diversification across products and sectors has allowed the company to de-risk its business operations. IPL’s portfolio comprises primarily of products that are manufactured in-house allowing it to cater to a wide range of customers in both domestic and international markets.

It has obtained registrations and licenses to manufacture 22 agrochemical Technicals and 124 Formulations for sale in India and 27 agro-chemical Technicals and 34 Formulations for export.

For APIs, it has obtained a license for manufacturing two drugs for sale from the Drug Licensing and Controlling Authority.

IPL is the sole Indian manufacturer and among the top five globally, for several Technicals, including Thiocarbamate herbicide and Folpet. The Formulations business includes a variety of herbicides, fungicides and insecticides and includes over 30 products, as of 1HFY21 that are sold primarily in India. The company’s strength is that its products have low toxicity and none of its key product in the Technicals segment are classified in the ‘red triangle’ category. This helps to avoid uncertainties associated with these products, including the use or import of such products being banned by regulators in India and abroad.

Long-term relationship with key customers

India is currently the 4 th largest producer of crop protection chemicals in the world and MNCs are taking advantage of cost-effective manufacturing in India along with availability of skilled labour. India is expected to emerge as an export hub for crop protection chemicals manufacturing in the future. IPL has in its kitty various MNCs that look to collaborate with active ingredient manufacturers in India, by leveraging on their cost effective manufacturing supported with cheaper labour force and stronger R&D capabilities

The company’s customer relationships are led primarily by its ability to manufacture complex Technicals that go off-patent in a cost effective manner as well as by its ability to meet stringent quality specifications. IPL has a diverse customer base that includes crop protection product manufacturing companies, such as, Syngenta Asia Pacific Pte. Ltd, UPL Limited, Ascenza Agro, S.A., Conquest Crop Protection Pty Ltd, Sharda Cropchem Limited and Stotras Pty Ltd, many of whom have been associated with the company for over 10 years.

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