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Product launches to drive growth

Declining raw materials price aiding margin expansion

Insecticides India (INST IN) reported a 10% decline in top line to INR 2.7bn. Gross margin expanded by 1,945bp to 31.9%, ahead of our estimates of 759bp increase, led by low cost raw materials purchases. Consequently, EBITDA came in at INR 89mn vs an EBITDA loss of INR 283mn in Q4FY23. Management’s focus on growing a Maharatna range of molecules, up 27%, and new launches gained traction.

Product launches and brand building on the rise

INST launched eight products in FY24, which generated INR 510mn in revenue this year. It plans to launch another 7-8 molecules in FY25. The upcoming launches would be more in the herbicides category for crops, such as sugarcane, paddy, maize and wheat. Brand-building activities and engagements with Indian actor Ajay Devgan resulted in higher demand for key products.

Backward integration to bolster margin expansion

The company is expanding capacity of technical and active ingredients at Dahej in Gujarat and Sotanala in Rajasthan. The Dahej plant is complete and awaits few approvals from the State government. INST is doing phase-wise capacity expansion of technical and formulations at Sotanala. The first phase is likely to start by end-FY25 while the second phase will operationalize from FY26-end.

Valuation: revise to Accumulate with a lower TP of INR 593

Management expects to achieve double-digit, topline growth in FY25, led by good demand for newly launched products. We expect healthy margin improvement, driven by better product mix and a decline in price of generic molecules, wherein price pass-through to end consumers has been lower. We trim our EBITDA estimates by 12% and PAT by 10% in FY25 and by 7% & 6% in FY26, respectively. We change to Accumulate from Buy with a lower TP of INR 593 from INR 629 based on 10x (unchanged) FY26E EPS of INR 59.3

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SEBI Registration number is INH000000933