Buy Insecticides India: target of Rs 700: ICICI Securities

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ICICI Securities research report on Insecticides India

Takeaways from Q4FY20: (1) Disposal of generics inventory resulted in lower realizations and impacted gross margin (740bps YoY decline), (2) The company has focussed on reducing net working capital and debt which is good for long term health of the company and (3) Agrochemical markets is doing well with (i) additional demand for herbicides due to labour shortage and (ii) increase in insecticides consumption due to locust pest attack after 26 years. We remain positive on Insecticides due to (1) steady launches of high-margin products, (2) removal of generic products from the portfolio and (3) backward integration of technical. The stock is trading close to 1-year forward ‘mean P/E - 1SD’.

Outlook

Return ratios are above cost of capital; hence, we believe the risk:reward is favourable. Maintain BUY with a target price of Rs700 (10x FY22E, Earlier TP-Rs832).

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