India Pesticides Limited (IPL) was incorporated on December 13, 1984. IPL is an
R&D driven agro-chemical manufacturer of Technicals with a growing
Formulations business. IPL is the fastest growing agro-chemical companies in
India in terms of volume of Technicals manufactured. In Technicals company
manufacture Fungicide Technicals, Herbicides Technicals for the export
market and on Formulation side company manufacture insecticides, fungicide
and herbicides, growth regulators and Acaricides for domestic market. IPL has
also diversified itself in APIs manufacturing in recent times.
Positives: (a) Company has done capacity expansion of 62.5% in the last three
years, in which Technical capacity has almost doubled and formulation
capacity has increased by 8.3%. (b) Diversified portfolio of niche and quality
specialized agro chemical products. (c) Company having very high ROCE &
ROE of 45% & 34% in FY2021 along with very high EBITDA margins of 29.2%.
Investment concerns: (a) Indian agro-chemicals industry is fragmented in
nature and faces competition from different domestic and global
manufacturers for different products that we manufacture. (b) Top-10
customers contribute 57% of companies overall revenue, largest customer
represent 30% of revenue to maintain relations will be challenging for the
company. (c) Any change in categorization of key technical in thr red triangle
will affect the company performance.
Outlook & Valuation: Based on FY-2021 PE of 24.5x and EV/EBITDA of 18.2x at
upper band of the IPO price, which is slightly better than the peers companies.
Similarly company having one of the best ROE & ROCE of 34% and 45%
respectively. Company having a very healthy balance sheet with negative
Net Debt to Equity. We expect the upcoming expansion plan and higher
capacity utilisation will be the growth drivers for the company in future. We
are assigning a “Subscribe” recommendation to the issue.
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