India Pesticides Ltd, an agrochemical company recently came out with its ₹800cr IPO which was subscribed by more than 29 times. The stock listed on the exchanges on 5th July at a premium of 20% from the IPO upper price band of ₹296.
I have written a detailed blog on the company which you can read here: India Pesticides Ltd- Analysis
A brief about the key strength of the company:
India Pesticides Ltd derives about 80% sales from Technical and 20% from the formulation business.
India Pesticides Ltd - Q2FY22 Analysis
Coming to the Q2FY22 result, despite the surging raw material prices, the company was able to better its margin on a Year on Year(YoY) basis.
Also, given that the company sells its product on a FOB basis i.e. the shipping cost is taken care by its customers, India Pesticides was somewhat immune to hit by the current surge in logistics cost.
But the logistic crisis hit them indirectly, where the export shipment was delayed by a customer leading to decline in sales by 18%.
Gross margin improved by 100bps from 67.1% in Q2FY21 to 68.1% in Q2FY22. EBITDA margin improved by 50bps from 30.4% to 30.9% YoY.
Company is debt free with a cash & equivalents position of 147cr as of 30th Sept'21.
Other financial ratios:
What made them improve the margin in a scenario where every other company is hit by the surging raw material cost?
According to the management, that is because of the niche product offered by the company. Also, the backward integration helps to sustain high margins.
The increase in raw material cost was around 10%, which the company was able to pass on the customer.
Product launches:
During Q1FY22, the company had launched one new technical product each in fungicide and herbicides categories. These 2 molecules can fetch around ₹130cr in FY23. IPL is also on track to launch 6 new products across categories in the coming quarters. And the market size of these 6 molecules are quite substantial.
Expansion:
India Pesticides Ltd is on track to expand its capacities at its Sandila facility where they will be spending ₹70cr each in FY22 & FY23 to expand the technical capacity by 9000MT.
For H1FY22, they have already spend 28cr and have increased the Technicals capacity by 1000MT to 18,400 MT at Sandila, UP.
Mega project: Coming to the mega project planned at Hamirpur, UP, the company has acquired 25 acres of land and the registration was completed in Oct'21. They have now applied for environmental clearance. This project will cost around ₹300cr and is to be funded through internal accruals. The project is likely to come later in FY23.
Given the asset turnover of 4.5x-5x, this would lead to substantial jump in revenues.
Other key pointers from the concall:
In order to grow, you need a strong team. To do so IPL is strengthening the top team.
The management has guided for a revenue growth of atleast 20% per annum for the next 2 years.
One of the customer of the company who was buying for their European operation are now sourcing and formulating in India only, has increased the volume purchase from IPL.
Formulation sales of the company is 100% domestic focused saw marginally drop by 6-7% due to erratic monsoon and lesser incident of pests. Of the Domestic biz, formulation has just 30% share, rest 70% is technicals.
Key Risk:
Customer and product concentration of the company remains a key risk.
Valuation:
In terms of valuation, the price to sales stood at 5x whereas the Price to earning stood at just 22x. Given the entry barrier/moat of the company, it is available at quite a reasonable valuation.