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India Pesticides IPO opens today: Should you subscribe?

All analysts, Moneycontrol spoke to, ascribed a 'subscribe' rating to the public issue given its positioning in the industry, strong R&D capabilities, diversified product portfolio, loyal customer base, reasonable valuations, and healthy financials.

June 23, 2021 / 09:24 AM IST
 
 
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Agro-chemical manufacturer India Pesticides will open its initial public offering for subscription today, June 23. The price band for the offer, which closes on June 25, has been fixed at Rs 290-296 per equity share.

The total offer size of Rs 800 crore comprises a fresh issue of Rs 100 crore and an offer for sale of Rs 700 crore. India Pesticides will utilise the net proceeds from the fresh issue to fund its working capital requirements and for general corporate purposes.

All analysts, Moneycontrol spoke to, ascribed a 'subscribe' rating to the public issue given its positioning in the industry, strong R&D capabilities, diversified product portfolio, loyal customer base, reasonable valuations, and healthy financials.

 

On the valuation front, "considering the diluted equity shares, FY21 earnings and upper price band, the company is valued at 24.5x P/E, which is at a discount compared to its listed industry peers (i.e, Dhanuka Agritech 21.4x, Bharat Rasayan 34x, Rallis India 30.2x and PI industries 60.1x)," said BP Equities.

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The brokerage has a 'subscribe' rating on the issue for the long term given its track record of financial performance, strong sourcing capabilities, distribution network and further expansion plans, the brokerage gives a 'subscribe' rating on this issue for the long term.

Also readIndia Pesticides IPO opens: 10 things to know before subscribing the issue

Moreover, "the company has a diversified range of products, loyal customer base, high focus on R&D and strong brand recognition that provides further growth visibility," said the brokerage.

ICICI Direct also assigned a 'subscribe' rating to the issue. "Since the company caters to a few large formulators globally, the upcoming capacity expansion is likely to improve the economies of scale. Further, technicals being a higher-margin segment compared to formulations, increase in revenue share bodes well for return ratios and thereby valuations," the brokerage reasoned.

India Pesticides focuses on manufacturing agro-chemical technicals and formulations. It places significant emphasis on R&D, constantly seeking to develop new products and alternate production process for their existing technicals and for those that are expected to go off-patent in the near future.

As a result of their R&D efforts, they have diversified their product portfolio and grown into a multi-product manufacturer of formulations, herbicide, fungicide technicals and active pharmaceutical ingredients.

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The company has obtained registrations from the CIBRC for 22 agrochemical technicals and 125 formulations for sale in India, and 27 agro-chemical technicals and 35 formulations to export. Its technicals are exported to over 25 countries which limits the impact of cyclical and monsoon trends in the agriculture industry.

The company has two manufacturing facilities in Uttar Pradesh, spread across over 25 acres. As of March 31, 2021, the aggregate installed capacity of manufacturing facilities for agro-chemical technicals was 19,500 million tonnes (MT) and formulations was 6,500 MT.

The company recorded revenue growth of 38 percent compound annual growth rate (CAGR) in FY19-21 supported by higher volume growth from the technical segment owing to better utilisation of expanded capacity. "Since technicals are a high margin segment, a higher share of technicals resulted in better gross margins and thereby operating profit margin, leading to EBITDA growth at 67.5 percent CAGR and PAT CAGR of 75 percent," said ICICI Direct.

Going ahead, with more technicals coming on stream, the share is expected to inch up thereby supporting overall business growth, said the brokerage. Further, "with strong free cash flow (FCF) generation owing to better control over working capital (WC) and higher OPM, the upcoming expansion is expected to be funded from internal accruals thereby aiding better return ratios in the years to come," said the brokerage.

The company has been able to maintain its debt position and its long term debt to equity ratio was 0.09, 0.06 and 0.02 in 2019, 2020 and 2021, respectively.

It also has a diverse customer base that includes crop protection product manufacturing companies such as Syngenta Asia Pacific, UPL, Ascenza Agro, Conquest Crop Protection, Sharda Cropchem and Stotras.

"We like the financial performance posted by company with healthy balance sheet status. As 19 technicals are expected to go off-patent between 2019 and 2026 and an opportunity size of over $4.2 billion is expected due to this by 2026 which company is well poised to cater," said Hem Securities.

The company has overall eight technicals under its portfolio currently, which is expected to increase to 16 over the next three years. It has been expanding technicals capacity by 10,000 MT with a total capex outlay of Rs 140 crore planned in the next two years. This, ICICI Direct feels, would aid revenues for the coming years given that asset turn is estimated to be around 3x for the forthcoming expansion.

"With company's focus on increasing its product portfolio, expanding geographical presence, onboarding more customers for newer molecules apart from molecules which are under implementation & already lined up as some of them will be going on stream sometime in September /October, future prospects of the company looks strong," said Hem Securities which recommended a 'subscribe' rating on the issue both for listing & long term gains.

Among other brokerage firms, Reliance Securities, Ashika Stock Broking, Anand Rathi, Arihant Capital Markets, and Marwadi Shares and Finance also advised subscribing the issue.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Jun 23, 2021 09:24 am

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