India Pesticides posts 100% growth on capacity expansion

India Pesticides Ltd is tapping the capital markets with its fresh issue of Rs 100 crore and an offer for sale of Rs 700 crore in a price band of Rs 290-296. The issue opens on Wednesday (June 23) and closes on Friday (June 25).

The company is a manufacturer of agro-chemical technical and formulations in India and for export. More than 60 per cent of the revenue comes from exports. The real growth in the company has been witnessed over the last three years when the company began increasing its manufacturing capacities. Its capacity of 10,000 tons has almost doubled to 19,500 tons by the end of March 21 and is set to increase to 29,500 tons by the middle of June 22. This increase saw the revenues almost doubled from Rs 340 crore in FY19 to Rs 650 crore in FY21. The company being technology and R&D focused has many molecules developed by it. Two of its molecules namely Captan and Ziram are widely used for apples and vineyard applications and are highly successful in India and abroad. About a fifth of total revenues comes from these molecules. The company reported an EPS of Rs 12.07 for the year ended March 21. The PE multiple for the issue is 24.03-24.52 based on consolidated numbers for March 2021.

The company is a niche manufacturer of agro chemicals and manufactures herbicides and fungicides. They have 8 homegrown and developed molecules which will form the growth driver going forward. These products have applications for the export markets as well as domestic. Margins in the export market are substantially higher and domestic prices take a cue from the overseas market. On the raw materials front, imports form a lower percentage and are about 38 per cent of the total requirement. The concern about China and imports from there is further reduced as imports from China are significantly low and are less than a fourth of the raw materials. The bid development in the agro-chemicals business is the China+1 phenomenon which has helped reputed players from India grow in stature and are dealing with MNC players across the globe whether it be Australia, Asia, Europe or the Americas which include North and South America. India Pesticides Limited is located in Lucknow, Uttar Pradesh. The company has its major unit at Sandila, Hardoi district near Lucknow. It also has a smaller unit at UPSIDC Industrial Area at Deva Road, Lucknow. The capacity utilisation which is already at 75 per cent would increase marginally going forward. In agro-chemicals industry 75-82 per cent is almost as good as optimum utilisation. The capacity of 19,500 tons is being doubled in 2 phases with the first already on and expected in the next 3 months partially (half) and balance half in about 8-9 months. The next expansion would take the company to 40,000 tons in a further 12-15 months from March 22. They have also acquired a new land parcel in a subsidiary company called Shalvis Specialities Limited. This company intends to manufacture speciality chemicals and is awaiting environment clearance for its proposed project.This facility would also be located in and around Lucknow. India Pesticides Limited is a net debt cash positive company and with healthy cashflows would fund capex with internal accruals and may be a small topping up of debt if required.

The company has compared itself with Dhanuka Agritech Limited, Bharat Rasayan Limited, UPL Limited, Rallis India Limited, P I Industries Limited, Sumitomo Chemical India Limited and Atul Limited. It compares very favourably on the financial parameters with these competitors. The one note of caution is on the revenues front where, Indian Pesticides Limited has much lower revenues than the peer set.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)