India Pesticides Limited (IPL) is an R&D driven agro-chemical manufacturer of technical, with a growing formulations business. India Pesticides is the sole Indian manufacturer of five technicals and among the leading manufacturers globally for Captan, Folpet and Thiocarbamate Herbicide, in terms of production capacity. Since commencing its operations in 1984, it has diversified into manufacturing herbicide and fungicide technicals and active pharmaceutical ingredients (APIs). The company manufactures herbicide, insecticide, and fungicide Formulations.
The company has two distinct operating verticals, namely- technicals and formulations. Technicals formed 78.87% of total revenues while formulations formed 21.13% of total revenues in fiscal 2021.
The company manufactures generic technicals that are used in the manufacture of fungicides and herbicides as well as APIs with applications in dermatological products. Certain key fungicide technicals it manufacture include: Folpet, used to manufacture fungicides that control fungal growth at vineyards, cereals, crops and biocide in paints and Cymoxanil, used to manufacture fungicides that control downy mildews of grapes, potatoes, vegetables and several other crops. Major herbicide technicals it manufactures include Thiocarbamate herbicides that have application in field crops, such as, wheat and rice, and are used globally. The APIs it manufactures have anti-scabies and anti-fungal applications.
The company manufactures and sells various formulations of insecticides, fungicide and herbicides, growth regulators and Acaricides, which are ready-to-use products. As of March 31, 2021, it manufactures over 30 formulations that include Takatvar, IPL Ziram-27, IPL Dollar, IPL Soldier and IPL Guru.
The company currently has two manufacturing facilities located at UPSIDC (Uttar Pradesh State Industrial Development Corporation) industrial area at Dewa Road, Lucknow and Sandila, Hardoi in Uttar Pradesh, that are spread across over 25 acres. As of March 31, 2021, its aggregate installed capacity of manufacturing facilities for agro-chemical technicals was 19,500 tonnes and formulations was 6,500 tonnes.
The power requirements for the manufacturing facilities are met through local state power grid through interstate open access, while water is procured from bore wells.
The manufacturing facilities are equipped with modern plant and machinery capable of producing quality technicals and formulations. Manufacturing facilities at Dewa Road are ISO 9001:2015, ISO 14001:2015, ISO 10002: 2018, and ISO 45001: 2018 (OHSAS) certified and at Sandila are ISO 9001: 2015, ISO 14001: 2015, ISO 10002: 2018 and OHSAS 18001: 2007 certified for quality management system, environment management system, customer satisfaction and complaint management system, and occupational health and safety management system, respectively.
Each of the manufacturing facilities can manufacture a wide range of products, which provides it with the flexibility to cater to changing demands in the market, thereby reducing dependence on any one major product category. It also has pilot facilities to test commercialization of its products. The companies' facilities are periodically audited and appraised by customers including various multinational corporations. It has also commenced construction of two manufacturing units at Sandila facility, which are proposed to be used for herbicide technicals.
Major raw materials used as part of manufacturing operations include chlorine, Tetrahydro phthalic anhydride, carbon di sulphide, technical grade urea, di-n propylamine, benzyl chloride and other specialty chemicals based on their application. For the fiscal 2021, the top countries from which it sourced raw materials included China and Taiwan, and locally from India. Imports of raw materials accounted for 35.02%, 34.56% and 38.04% of total raw materials purchases in fiscals 2019, 2020 and 2021, respectively. The company usually does not enter long-term supply contracts with any of raw material suppliers and typically source raw materials from third-party suppliers or the open market.
Anand Swarup Agarwal and the ASA Family Trust are the promoters of the company. Promoter, Chairman and Non-Executive Director, Anand Swarup Agarwal has over 35 years of experience in the manufacturing sector. Senior management team that includes, Dheeraj Kumar Jain, Chief Executive Officer and Satya Prakash Gupta, Chief Financial Officer have significant experience and have been associated with company for over 20 years. It has a strong employee base comprising of 673 employees, as of March 31, 2021, and the attrition rate of employees was 6.36% in FY 2021.
India Pesticides R&D capabilities include two well-equipped in-house laboratories registered with the DSIR (Department of Scientific and Industrial Research). The company efforts are led by a dedicated R&D team that comprises PhDs, Masters graduates in chemistry and a biotechnological engineer. Since 2018, R&D efforts have resulted in the development of processes for products that are not highly toxic and commercialization of three technicals, the sales of which contributed to 42.13% of revenue from operations in FY 2021. The company is currently in the process of developing processes for certain technicals, including two fungicides, two herbicides, two insecticides and two intermediates.
The company'stechnicals are primarily exported and revenue generated from exports contributed to 56.71% of total revenue from operations in fiscal 2021. As of March 31, 2021, technicals are exported to over 25 countries including Australia and other countries in North and South America, Europe, Asia and Africa. Formulations products are primarily sold domestically through its extensive network of dealers and distributors. The company has a diverse customer base that includes crop protection product manufacturing companies, such as, Syngenta Asia Pacific Pte. Ltd, UPL Limited, ASCENZA AGRO, S.A., Conquest Crop Protection Pty Ltd, Sharda Cropchem Limited and Stotras Pty Ltd.
The company has obtained registrations from the CIBRC (Central Insecticides Board and Registration Committee) for 22 agro-chemical technicals and 125 formulations for sale in India and 27 agro-chemical technicals and 35 formulations for export while it has a license to manufacture from the Department of Agriculture, Uttar Pradesh for 49 agro-chemical technicals and 158 formulations.
Of the eight technicals manufactured by the company, six technicals are categorized under the 'Blue Category' while two are categorized under the 'Green Category', indicating 'moderately toxic' and 'slightly toxic', respectively, as determined by Central Insecticide Board & Registration Committee.
For APIs, it has obtained a license for manufacturing two drugs for sale at Dewa Road from the Drug Licensing and Controlling Authority under the Drugs and Cosmetics Rules, 1945. The company manufactures eight technicals, two APIs and over 30 formulations.
The Offer and the Objects
The offer comprises a fresh issue of 3378378 equity shares at upper price band of Rs 296 and 3448276 equity shares at lower price band of Rs 290 aggregating up to Rs 100 crore by the company and an offer for sale by selling shareholders (Promoter Anand Swarup Agarwal and others) of up to 23648649 equity shares at the upper price band of Rs 296 and 24137931 equity shares at the lower price band of Rs 290 aggregating to Rs 700 crore.
Promoter Anand Swarup Agarwal pre-issue shareholding was 40.07%, which shall decrease to 30.6% at the upper price band of Rs 296, while other selling shareholding will decrease from 34.52% to 21.2%. Other selling shareholders are Sanju Agarwal, Mahendra Swarup Agarwal, Virendra Swarup Agarwal, Pramod Swarup Agarwal, Vishwas Swarup Agarwal, Vishal Swarup Agarwal, Sudha Agarwal, Komal Swarup Agarwal, Saurabh Swarup Agarwal, Aparna Gupta, Kajaree Swarup Agarwal, Anurag Swarup Agarwal, Sneh Lata Agarwal, Asha Agarwal, Nupur Goyal, Shalini Pawan Agarwal and Sugandha Swarup Arora
The company proposes to utilize the net proceeds of the fresh issue towards funding working capital requirements of the company amounting Rs 80 crore and balance towards general corporate purposes.
Strengths
The world population is growing at the rate of 70 to 80 million per year. The growth in the world population has led to higher demand for food crops. With limited growth in land and high demand of food, there is a necessity to increase productivity and thus, chemicals are used to reduce damage to the crops of interest. The total agro-chemicals market is projected to grow from US$ 62.5 billion in 2019 to US$ 86 billion by the end of 2024. he Indian crop protection chemicals market is valued at US$ 2.1 billion which is anticipated to grow at 4% in the next five years to US$ 2.6 billion by 2024. India has been ranked fourth globally in the production of agro-chemicals (crop protection chemicals/ pesticides) after USA, Japan and China
The 'China plus one' strategy avoids overinvesting in one country, i.e., China, and promotes diversification of business in other countries. Many multinationals are taking proactive steps to reduce dependence on China for their manufacturing operations and looking at India as an alternative option.
The company has obtained approval from the MoEF (the Ministry of Environment, Forest and Climate Change, Government of India) to expand its manufacturing capacity at Sandila to 30,000 tonnes. It believes that expansion plans would strengthen and diversify the customer base.
The company intends to continue to expand its product portfolio by manufacturing complex off-patent technicals. Between 2019 and 2026, 19 technicals are expected to go off patent protection and as a result, the demand for these technicals globally is expected to increase, particularly in regulated markets
The company may consider other acquisition opportunities acquiring divisions of existing companies to selectively expand in its verticals, provided such opportunities offer the synergies it look for and are available at competitive prices. The company believes such acquisitions will support its long-term strategy, strengthen competitive position, particularly in acquiring technical expertise and provide greater scale to grow earnings and increase shareholder value
The company has established relationships with customers many of whom have been associated with the company for over 10 years.
India Pesticides is one of the fastest growing agro-chemicals companies in terms of volume of technicals manufactured. The company recorded 37.17% year-on-year growth in technicals manufacturing (by volume) between fiscal 2020 and FY 2021, reaching more than 75% plant operating rate. India Pesticides manufactured 15,003 tonne of technicals in FY 2021.
The company core focus is on quality and sustainability and none of its key technicals are classified as 'red triangle' or highly toxic products
Total capacity utilisation stood at 77%, 76% and 80% in FY2021, FY2020 and FY2019 inspite of total installed capacity increasing from 10000 tonnes in FY2019 to 14500 tonnes in FY2020 and 19500 tonnes in FY2021.
Weaknesses
The company is dependent on a limited number of customers for a significant portion of revenues. In fiscals 2019, 2020 and 2021, top 10 customers represented 54.35%, 58.59% and 56.83%, respectively, of total revenues from operations in such periods. Largest customer represented 29.63%, 16.75% and 19.23% of total revenues from operations in FYs 2019, 2020 and 2021, respectively.
The Indian agro-chemicals industry is fragmented in nature and the company face competition from different domestic and global manufacturers for different products that it manufactures.
The company is required to obtain and maintain various statutory and regulatory permits, approvals, licenses and registrations to operate its business, certain of which may have expired and have been applied for and certain of which are due to expire in the near future
The company is subject to strict technical specifications, quality requirements, regular inspections and audits by customers including various multinational corporations. Its failure to comply with the quality standards and technical specifications prescribed by such customers may lead to loss of business from such customers and could negatively impact reputation, which would have an adverse impact on business prospects and results of operation
The company is required to comply with the applicable regulations of the international markets where it exports its products as well as obtain registrations from international agencies through customers to enable exports of products to other jurisdictions. Further, international operations are subject to regulatory risks that could adversely affect business and results of operations.
R&D is integral to part of business. However, R&D efforts may not result in new technologies or products being developed on a timely basis or meet the needs of customers as effectively as competitive offerings
The company is subject to significant risks and hazards when operating and maintaining manufacturing facilities, including the manufacture, usage and storage of various flammable, corrosive or hazardous substances, for which insurance coverage might not be adequate.
Agro-chemicals business is subject to climatic conditions, the overall area under cultivation and the cropping pattern adopted by the farming community. Seasonal variations and unfavorable local and global weather patterns may have an adverse effect on business, results of operations and financial condition.
There is a growing consumption of bio-pesticides globally and in India. The use and adoption of biopesticides by customers may affect its competitive position. The company currently does not manufacture any bio-pesticides
The pesticide industry requires high working capital investment due to high Inventory and long credit period. The commoditised nature of the products and seasonality factor (high demand during crop sowing seasons) makes the operations of the group highly working capital intensive.
Valuation
For FY 2021, consolidated sales were up by 35% to Rs 648.95 crore primarily due to increase in installed capacity on account of expansion of existing units, launch of new products and higher demand for agro-chemical technical products on account of increase in demand from existing and new customers and due to an increase in revenue from formulations business vertical on account of increase in new products. OPM rose 870 bps to 28.2% which led to 96% increase in operating profit to Rs 183.09 crore. Other income decreased 36% to 6.42 crore while interest cost fell 34% to Rs 3.43 crore and depreciation increased 21% to Rs 6.14 crore. PBT increased 93% to Rs 179.95 crore. Tax expenses rose 99% to Rs 45.63 crore. Net profit increased 89% to Rs 134.11 crore.
At the higher price band of Rs 296, the offer is made at around 25.4 times its EPS of Rs 11.7 for the period ended March 31, 2021, on a post-issue equity share capital of Rs 11.52 crore of face value of Rs 1 each. Listed industry peers of the company are DhanukaAgritech, Bharat Rasayan, UPL, Rallis India, PI Industries and Sumitomo Chemical India
In comparisionDhanukaAgritech trades at 21.7 times its TTM EPS of Rs 44.6 at the current market price of Rs 968, Bharat Rasayan trades at 34.4 times its TTM EPS of Rs 358.4 at the current market price of Rs 12328, UPL trades at 20.1 times its TTM EPS of Rs 40.1 at the current market price of Rs 807, Rallis India trades at 31.4 times its TTM EPS of Rs 10.9 at the current market price of Rs 344, PI Industries trades at 58.5 times its TTM EPS of Rs 48.7 at the current market price of Rs 2849 and Sumitomo Chemical India trades at 54.6 times its TTM EPS of Rs 6.9 at the current market price of Rs 378.
| India Pesticides: Issue Highlights |
| Fresh issue (in Rs crore) | 100 |
| Offer for sale (in Rs crore) | 700 |
| Offer for sale (in number of shares) | |
| - in Upper price band | 23648649 |
| - in Lower price band | 24137931 |
| |
| Price Band (Rs) | 290-296 |
| For Fresh Issue Offer size (in no of shares ) | |
| - in Upper price band | 3378378 |
| - in Lower price band | 3448276 |
| Pre issued capital (Rs crore) | 11.18 |
| Post issue capital (Rs crore) | |
| - in Upper price band | 11.52 |
| - in Lower price band | 11.52 |
| Pre issue promoter and Promoter Group shareholding (%) | 82.68 |
| Post issue Promoter and Promoter Group shareholding | |
| -On higher price band (%) | 72.00 |
| -On lower price band (%) | 71.96 |
| Bid Size (in No. of shares) | 50 |
| Issue open date | 23/06/2021 |
| Issue closed date | 25/06/2021 |
| Listing | BSE, NSE |
| Rating | 42/100 |
| India Pesticides: Standalone Financials |
| Particulars | 1903 (12) | 2003 (12) | 2103 (12) |
| Total Income | 340.69 | 479.63 | 648.95 |
| OPM | 19.2 | 19.5 | 28.2 |
| Operating Profits | 65.28 | 93.56 | 183.09 |
| Other Income | 5.35 | 10.10 | 6.42 |
| PBIDT | 70.63 | 103.66 | 189.52 |
| Interest | 5.58 | 5.22 | 3.43 |
| PBDT | 65.06 | 98.44 | 186.08 |
| Depreciation | 3.96 | 5.07 | 6.14 |
| PBT | 61.10 | 93.37 | 179.95 |
| Share of Profit/loss of JV | 0.00 | 0.00 | 0.00 |
| PBT Before EO | 61.10 | 93.37 | 179.95 |
| EO | 0.00 | 0.00 | 0.00 |
| PBT after EO | 61.10 | 93.37 | 179.95 |
| Provision for Tax | 17.18 | 22.89 | 45.63 |
| Profit after Tax | 43.92 | 70.48 | 134.32 |
| PPA | 0.00 | -0.32 | 0.21 |
| Net profit after PPA | 43.92 | 70.80 | 134.11 |
| MI | 0.00 | 0.00 | 0.00 |
| Net profit after MI | 43.92 | 70.80 | 134.11 |
| EPS (Rs)* | 3.8 | 6.1 | 11.7 |
*EPS annualized on post issue equity capital of Rs 11.52 crore of face value of Rs 1 each
Figures in Rs crore
Source: Capitaline Corporate Database |
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