Buy Insecticides India; target of Rs 960: HDFC Securities

HDFC Securities' research report on Insecticides India

Insecticides India’s (INST) reported a healthy 2QFY19 performance amidst rupee depreciation and higher input costs (technicals). Sales/EBITDA/PAT grew by 10.0/24.4/18.9% YoY to Rs 4.5bn/Rs 692mn/Rs 430 mn respectively. Early arrival of monsoon brought a cheer to the Kharif season however; the overall distribution of rainfall in the country was weak and stood 9% below LPA leading to lower yields of Kharif crops. Despite increase in MSPs of Kharif crops, farmers fetched lower prices for their yields. The management aims at reducing the concentration of generic products by 5% every year and has a strong product pipeline for FY19 (6 products launched, 3 in pipeline) and FY20 (around 10-12 product launches planned). The strategy has been to off-set the impact of phasing out the 4 in-licensed products (which are declared as banned by the government, contributing Rs 1.6bn @20% gross margins) by introducing new products by leveraging existing distribution and marketing networks.

Outlook

We expect RoCE/RoICs to increase by 40/170 bps over FY18-21E. INST is expected to generate FCFF of Rs 2.9 bn over FY18-21E. INST is trading at 10.5/8.8x FY19/20E EPS and is available at 1.3x FY20E P/BV. Maintain BUY with a TP of Rs 960/sh (17x Sept-20 EPS).