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Target: ₹469
CMP: ₹440.80
Insecticides India reported a sharp contraction in gross margin, driven by mark-to-market loss and liquidation of high-cost inventory.
Top line grew 9 per cent, but gross margin contracted 1,900 bps year on year to 12.4 per cent.
The sharp and sudden price decline of agro-chemicals from China led to significant fall in the price of technical, which forced Insecticides India to sell its products at competitive prices. EBITDA came in at a loss of ₹28.30 crore vs our estimates of a loss of ₹10 crore.
The management says the technical business has struggled over April-May, due to a sustained decline in the price of raw materials. It expects the impact of high-cost inventory to wane after Q1-FY24.
Insecticides India has acquired a 15-acre plot at Dharod in Rajasthan to set up a new plant. Capacity will come in phases. Phase 1 is expected to commence in FY25 for formulations and the biological unit. In Phase 2, the company will set up a technical plant at the same site.
While the management expects to achieve about 10-12 per cent top-line growth in the next year, driven by good demand for newly launched products, margin improvement is the need of the hour to increase profitability. We reiterate Accumulate with a lower TP of ₹469 from ₹659 based on 10x (unchanged) FY25 EPS of ₹46.9.
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