Insecticides India: BUY

Stocks of agro-chemical makers have been on a roll, thanks to healthy financial performance. Steady growth in the domestic market, healthy demand in key international markets and the rupee depreciation against the dollar helped the industry grow at a robust pace, despite erratic monsoons. This led to re-rating of stocks of pesticide makers over the last few years.

Despite the sharp rally, some of them are still attractively priced, considering the good growth prospects over a three-to-five year horizon.

Among these is the stock of Insecticides India. Despite being a late entrant into the Indian agrochemical market, its well planned brand acquisition strategy helped the company quickly mop up revenues.

While the company's capacity expansion project at its Rajasthan and Gujarat plants will drive growth over the short term, progress in its innovative research project can spur the company’s growth over the next five years.

At ₹887, the stock trades at about 13 times its estimated 2015-16 earnings, implying a 35 per cent discount to peers such as PI Industries and Rallis India.

Having started off as a generic pesticide formulator, Insecticides India has, over the years, morphed into an integrated crop protection player. Its strategy to acquire leading brands acted as the key growth engine.

The acquisition of three large brands from Montari Industries laid the foundation for the swift scale-up in revenue.

The company also strengthened its research capability by setting up a research and development centre in 2005 to launch generic insecticide brands such as Victor and Arrow. These are now among its top selling brands.

In 2012, Insecticides India joined hands with the Japanese crop protection major Nissan Chemicals to sell its herbicide brands, Hakama and Pulsor, which met with good response from the farming community.

Besides launching generic versions of leading innovative brands, marketing tie-ups with global players such as the US-based Amvac Chemicals for its Thimet brand enabled Insecticides India expand its product basket.

The company is building additional manufacturing capacities which can drive growth in the near term. Its formulation manufacturing capacity at Rajasthan has been expanded by 25 per cent to 75,000 tonnes per annum.

The company is expanding its active ingredient facility at Gujarat by putting up two additional lines; the total number of lines will then stand at 12. The new capacity is expected to become operational by first quarter of the next fiscal.

According to the management, these investments can help the company double its revenue over the next three-four years.

Insecticides India is in a transition phase — from a pure generics company into an innovative agrochemical maker. The company is working on discovery of new molecules through a joint venture with the Japan-based Oatsuka Agri Techno Company, in which Insectides India holds 20 per cent stake.

With 35 scientists working on a few innovative molecules, the company expects to launch its first product over the next four years.

However, given the risk associated with innovative research, delay beyond four years cannot be ruled out. Insecticides India’s current product basket consists of 120 brands.

This includes flagship brands such as Victor, Thimet, Nuvan, Lethal and Monocil.

The top 20 brands account for almost 75 per cent of the company’s revenue — the product concentration is lesser compared with peers such as Excel Crop Care.

In the first half of 2014-15, the company’s revenue grew 22 per cent to ₹654 crore compared with the same period last year.

Operating profit margin expanded by 1.7 percentage points to 11.7 per cent during this period. Net profit grew 44 per cent to ₹40 crore.

COMMENT NOW