Buy Insecticides (India) Ltd; target of Rs 540: Sharekhan

Sharekhan is bullish on Insecticides (India) Ltd has recommended buy rating on the stock with a target price of Rs 540 in its research report dated June 01, 2023.

Broker Research

June 06, 2023 / 13:45 IST

Buy

Sharekhan's research report on Insecticides (India) Ltd

Q4FY23 results were weak as a net loss of Rs. 29 crore was significantly higher than our estimate of net loss of Rs. 4 crore due to negative OPM of 9.4% given the hit from provisions on liquidation of high-cost inventory and a mark-to-market (MTM) loss of Rs. 15-20 crore. Management guided revenue growth of 10-12% and subdued EBITDA margin of 9-10% (lower than 11-12% historically) for FY24 as liquidation of high-cost inventory would continue in Q1FY24. Ramp-up of recently commissioned capacity expansion at Chopanki & new products along with recovery in export revenues could drive earnings recovery over Q2FY24-FY25. We cut our FY24/FY25 earnings estimate sharply by 28%/22% to factor lower revenue/margin guidance which reflects near-term concerns amid high channel inventory and product prices pressure given excess supply from China.

Outlook

The steep 40% fall in stock price in CY23YTD largely factors in margin concerns. Ramp-up of new capacity and recovery in export revenue could drive earnings recovery from Q2FY24. Hence, we maintain a Buy on Insecticides (India) but with a lower PT of Rs. 540. Valuation of 13x/9x its FY2024E/FY2025E EPS is attractive.

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