Buy Insecticides (India); target of Rs 900: Sharekhan

Sharekhan's research report on Insecticides (India)

In-line Q1FY22 operating profit at Rs. 53 crore (up 7.9% y-o-y) as higher-than-expected revenue growth of 14.3% gets offset by 116 bps miss in OPM at 11.3%. PAT at Rs. 35 crore (up 1.7% y-o-y) missed our estimate due to lower other income. Strong revenue growth was driven by 28.7%/179.4% y-o-y rise in institutional/export sales while branded sales growth were muted at 2% y-o-y. Rise in share of low-margin institutional sales and higher costs led to a contraction in margin. The management reiterated revenue growth guidance of 10-12% y-o-y for FY2022 and expects gradual pick up in margins to 15% led by a rise in share of high margin-new generation products and backward integration.

Outlook

We maintain Buy on the stock with an unchanged PT of Rs. 900, as we expect a strong 29% PAT CAGR over FY21-FY24E, RoE of 18% and balance sheet is also strong. Valuation of 8.6x/6.7 its FY23E/FY24E EPS is attractive.