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SBICap Securities
Insecticides (India) — Buy
CMP: ₹614
Target: ₹898
Insecticides India Ltd (IIL) has emerged as one of India’s leading agrochemical manufacturer and currently commands 6.7 per cent market share (sixth largest among listed space). We see a compelling valuation case ahead from a) utilisation scale-up from Dahej; b) broadening of sales in speciality segment; c) RoCE expansion accruing from rising margins; and d) a near-complete capex implying improved FCF generation. Our estimates suggest 33 per cent EPS growth over F14-F17e unlike 14 per cent seen over F11-F14. We find IIL’s reach and B/S strength as ripe enough for strategic tie-ups that can trigger a further upside. The stock on PEG basis trades at 60 per cent discount to peers.
Operating leverage from Dahej, easing liquidity and capex normalising are in our belief likely to positively surprise the street on operating cash flow and FCF in F16e/F17e. As earlier setback at Dahej remains fresh in investor minds only a credible efficiency uptick would ensure greater valuation upside, in our view.
Risks: Deterioration in B/S (working capital), currency volatility and market slowdown.
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