News Analysis

India Pesticides Limited: Harvest the listing gains

Sai Prabhakar Yadavalli BL Research Bureau | Updated on July 05, 2021

Valuations are at the higher end of industry range

India Pesticides Limited (IPL) listed with a 22 per cent premium at ₹360 per share compared to IPO price of ₹296. The IPO valued the company at 24.5 times FY21 earnings. Post its listing, at the time of writing this, the stock was trading at a premium of around 18 per cent to its IPO price, valuing it at close to 30 times FY21 earnings, which is at the higher end of industry valuations. The peer set, which includes companies like UPL, Dhanuka Agritech and Rallis India, is trading in the range of 20-30 times FY21 earnings, with PI Industries alone trading substantially higher at closer to 60 times.

India Pesticides IPO subscribed 29 times

Investors who have been allotted the shares of IPL can book profits, given the need for more data points on sustainable growth rates and margins before investing. IPL’s EBITDA margin improved from 21 per cent range in FY19-20, to 29 per cent in FY21. Investors need to track coming quarterly performance and assess the sustainability of high margins. Investors also need to monitor the outcome of regulatory proposals to ban 27 pesticides that account for 18 per cent of IPL’s revenues.

India Pesticides IPO: Wait and watch

China factor

India Pesticides (IPL) derives around 78 per cent of its revenues from technicals (active ingredients for formulations) and balance from formulations. Exports account for around 57 per cent of revenues. IPL posted revenue growth of 38 per cent in FY19-21 which, in turn, was driven by volume/capacity expansion in its primary technicals segment. The growth beyond the medium term, after exhausting capital expansion, will depend on China diversification strategy, where global buyers look for supplies outside of China. Within pesticides industry as well, reliance on generic formulations largely rules out new product-based growth.

Published on July 05, 2021

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