Best Agrolife - Think Big, Think Best!

Stock Opportunities Untested - but worth a good look
1

Introduction

Incorporated in 1992, Best Agrolife Limited is a publicly listed company (listed in 2016 in BSE and 2021 in NSE) servicing the agrochemical industry of India and international markets, with its niche product offerings. A research-driven organization, Best Agrolife Ltd. aims to offer high-quality, innovative, effective crop-protection and food safety solutions to our farmer and serve the globe through agriculture. Best Agrolife is one of the fastest growing provider of Technicals, Intermediates, Formulations, Public health Products and has moved up the ladder from being ranked in Top 20 Indian Agrochem companies in 2020 to Top 15 in 2021. It must be noted that the company had a complete change in business in 2018. It started with a business in trading of Plastic Granules, Plastic Raw Materials, PVC Resin, organic and inorganic chemicals, compounds, solvents etc (and was known as Sahyog Multi Bse Limited) and later amalgamated in 2018 with “Best Agrochem Private Limited” inheriting the agrochemical business.

image

Product Offerings

Recognized by its niche category of product line which it offers to support sustainable agriculture, the company is committed to serving the globe through agriculture, making each farmer prosperous in the process. The company offers 70 formulations of various insecticides, herbicides, fungicides and PGRs, some of which have come out of patent in recent past (2021) only. These offerings are environment friendly formulations such as SC, SE, ZC, WG, MEC to name a few.

Strengths

  1. The company has one of India’s most Comprehensive Portfolio
    2.The company has 350+ Formulation Licenses
  2. The company is innovation driven having a farmer orientation with solution providing approach
  3. Building strong presence among the farmers by conduction various programmes and farmers meets (Can be easily tracked through youtube, theier Linkedin handle and news)
  4. The company has 90% share of Specialty Molecules
  5. The company has an excellent client base with UPL, IFFCO, Heranba, Bharat Rasayan, Mahindra Agro,Atul Ltd., Safex, Coromandel Fertilizers, Safex and Adama to name a few.
  6. The company has received huge patents recently.
  7. The most important strength : Its Management. They have until now delivered more than they promised.

Recent Blockbuster Events related to the company

  1. Best Agrolife Limited has received a patent valid for 20 years for the first-of-its-kind of three-way insecticidal combination in India that will effectively control the entire sucking pest complex, including whitefly, jassids, aphids, and thrips together in various crops in just one spray alone.. (Product trademark- RONFEN)

  2. Best Crop Science LLP became the first agrochemical company in India to manufacture Trifloxystrobin Technical hence giving Best Agrolife an first mover advantage .

  3. Best Agrolife Limited wont the title of India’s Most Innovative Agrochemical Company -2021 in the Business Mint’s NationWide Start-Up Awards-2021 for its excellent R&D capabilities.

  4. Agrochemical firm Best Agrolife acquires Best Crop Science in â‚ą101.6-crore deal. BCSPI, is engaged in the business of manufacturing all kinds of Technical and Formulation Grade Pesticides. Herbicides, insecticides and other chemicals & chemical products, industrial chemicals etc. As such, this acquisition is a step towards expanding and consolidating its business through backward integration in technical manufacturing.

Risks Analysis

  • The complexity of rural marketing poses several challenges which are further compounded by the vast geographic spread of the country as well as the low literacy levels and low spending power of the farming community. This is faced by all players and as Best Agrolife Ltd. is relatively new company, will the farmers accept their offerings (as they are difficult to shift from one trusted brand to another untried brand). Looks like a yes considering its sales, numbers, event based marketing and their farmer first approach.

  • Its a small cap company with MCap of 1800 Cr. Small caps always comes with inherent risks. However, looking at the company’s performance, client base, product offerings, RnD and innovative capabilities and efficient management, I believe that the company has the potential to transcend from being a smallcap to midcap and gradually to large cap in a period of 10-15 years.

  • The promoter holding in the company is low = 40.6%

  • The company has a Moderate Working Capital nature of operations. As such, the working capital management of the company is intensive owing on the account of high inventory days. Over the period of operations, the company’s cash Conversion Cycle is getting longer owing to the increase in inventory days. However, there is a great improvement in debtor days.

  • Best Agrolife is operating in a red ocean with many organized and unorganized players and hence faces stiff competition and pricing pressure. For the company to sustain, creation of a brand, a brand recall and continuous value addition is the of utmost importance. Till now the company is doing good on these three parameters and with increased spend in RnD and new RnD establishment at Pune, the company might keep ticking these boxes.

  • There has been a significant issue of new shares leading to EPS dilution. However, it was because of the company’s move to change its business of operation. In my opinion ,it was essential to source more fund as its in its initial and high-growth stage of its life cycle. Also, as the growth in top line and bottom line have been phenomenal, the EPS growth has also been fantastic. As such , despite the EPS dilution, the EPS is great and increasing . So, investors have not been adversely impacted by the increase of share capital.

  • It is in agrochem space and faces tailwinds due to cyclicity. Its December results have been poor and it would be interesting and important to see how they perform in the quarter this year.

Conclusion

Best Agrolife is a potential gem .

  • The company declared great results. Their operating revenues grew 31.24% in FY 2020-21. PAT grew by 348.59% to Rs. 37.06 Cr. As such the company boasts an EPS of Rs. 16.82 - in just 3 years of its operations. The company is in its high growth phase.
  • The borrowings of the company have reduced and the intent of the management is evident.
  • There is a robust pattern of operating leverage. As it is in the agro- chemical business, increase in sales would again translate into high bottom line growth owing to the operating leverage.
  • The remunerations for auditors and directors are < 0.012 and 0.05% respectively. These are in lines with their statement - “Farmer Is First, Always In Best!”

The company has moved up the ladder with a handsome CAGR to be ranked in the top 20 in india in FY2020 and now is currently in the Top 15 of India. The extraordinary growth rate shall sustain for the coming 3 -4 years owing to the sector it is in and it shall be a wealth compounder there on.

They are an industry first in some of the major import active ingredients like diron. Diron is an import substitute which reduces dependence of farmers on imports and hence helping the farmers save.

The management is smart and experienced and have outdone its peers in the agro-chem space in terms of growth. The various interviews of management and their Annual Report has shown the great vision of the management. Happy to share that the company had met the promises it made in FY20 (stated in their Annual Reports and Interviews) and have infact exceeded them. The company is progressive and has robust plans.

All in all “Great Vision. Great Mission. Great leadership”

Disclosure I have entered 80% of my desired quantity at Rs. 370

15 Likes
2

Key Observations from Annual Report 2020-2021:

  1. The company is determined to grow and make strategic acquisitions and undertake green field and brown field projects for the same. The company has started the establishment of a new RnD center at Noida with a pilot plant.
  2. The company has increased the production capacities of existing plants.
  3. Environmental clampdowns in China will reduce the number of local chemical enterprises from 6,884 to only 1,000, by 2022. This will lead to a decrease in China’s installed capacity and agrochemical
    companies in India are expected to effectively increase the capacity utilization in India.
  4. The company’s endeavor is to now produce less AI per hectare doses which means less loading on environment.

Quantitative Summary

I have borrowed a quantitative summary from Screener for a quick picture of the company in terms of numbers.

image
image1100Ă—751 75.9 KB

3 Likes
5

image
image1705Ă—100 10.9 KB

What happened that the Promoter stake increased so much during June 20 quarter? From 5% to 38% is incredible, that too in a single quarter.

2 Likes
6

There was structural change in the company-its management and its business wherein Sahyog Multibase Ltd. amalgamated with Best Agrochem Private Limited and adopted the agrochemical business entirely leaving behind the original business in PVC of SBL. So, this started in 2018 and totally got completed by 2020. Hence, there is a massive boost in promoter holding. As we can also observe in various sources like Stock Edge, we can observe that the Promoter Mr. Vimal is still increasing his stake in the company and its a great sign of their confidence in the company.

1 Like
7

As I already mentioned that the Promoters are actively increasing their shareholdings, today another circular has been sent to the exchange regarding further acquisitions of share.

By Vandana Alawadhi :

By Vimal Kumar

Now the shareholding of promoters have increased from 40.78% to 44.08%.

Promoters’ confidence boosts my conviction on the company.

I have been regularly interested in digging deep into the company and the increase in promoters holding is a great sign for staying invested in this company. The company has a great essentiality of demand, solution-centric team, confident promoters and innovative minds. The company’s RnD capabilities for me is the moat that the company has worked on fascinatingly well.

4 Likes
8

A very good article on the future of best agro and upcoming Products.
Hope it adds value!

2 Likes
9

image
image925Ă—589 87 KB

Any idea why such high receivables?

1 Like
10

This needs some scrutiny I guess as it’s a major issue

11

The Promoter has again increased his stake this quarter, something is cooking but I have no idea whatsoever. Another thing is it was done through a gift. Does anyone how gifting works?

4 Likes
12

Brickwork Ratings has assigned recently the ratings for the Bank Loan Facilities of Rs. 111.50 Crs. of Best Agrolife Ltd.

image
image937Ă—563 20.8 KB

http://bcrisp.in///BLRHTML/HTMLDocument/ViewRatingRationaleInitial?id=34389

1 Like
13

The Board of Directors of the Company at its meeting held on 10th November , 2021 has approved the purchase of immovable property (land including building),plant & Machinery and stock owned by Agrico Chemicals strengthening its backward and forward integration.

The company is in the right path.

14

The company has reached Rs 1000cr revenue within 2 years, something that established players have been able to do over decades. Its products can be found only on its own website and no other website. Did someone do any on-ground scuttlebut about its products and brands? There is very less to no information about manufacturing facilities.

I would be very careful with this company. I had bought a few shares a while back as it appeared good both fundamentally and technically but sold them when I realized the above.

2 Likes
15

Firstly, these Products cannot be found online because all the sale is on the ground through distributors as is the same for any Pesticide or formulation. The company is there on the ground and growing very fast. The only issue is lack of much disclosures but that’s not a reason to sell a stock.

2 Likes
16

Did anyone get to attend the AGM that apparently happened on Sept 28? A few questions:

  • What is the number of employees in the company?
  • Why did the promoters buy only around 38% of the shares by Jun 2020 when the prospects are very bright? The shares were very cheap at that time.
  • Who recently gifted more than 3 lakh shares to the promoters?
  • How does the company manage such a vast distribution network for Rs 1000cr revenue?
  • What is the background of the biggest promoters? What did they do before Best Agrolife?

A Vakrangee can become a Rs 50K crore company. Anything is possible in the stock market. If as an investor, you are confident you can get out with profit at the right time, all is fine. I am not invested in this company now. If I were, I would ask these questions from the company (a concall would be great) and I will be sure to investigate what is happening on the ground.

4 Likes
17

No. I have mailed the company for the recordings and am waiting for a response. It is definitely not a Vakrangee as the company’s qualitative and quantitative aspects are in an uptrend and the share price movement has been in sync with it. The management of the two companies shall never be compared and is like apple to orange comparison.

I would like to answer few of the questions:

  1. As on 31st March 2021, the Company has a total count of 160 permanent employees. The number of casual/contractual employees is unknown as they vary from time to time. It has a total workforce of 500+. The permanent employment number has reduced to 160 from 196 in 2020 and 180 in 2021. The reason for the same is open for speculation: May be job dissatisfaction, better personal opportunities or simply company’s HR Policies.

  2. There was a change in company’s inherent business and since then the company had increased stake directly from 5% to 38%. This itself is a huge jump. But the question on why only 38% considering the valuations were very cheap is very accurate. As per my Analysis, it is however not a major concern. Probably the promoters required funds for business requirements and hence could not acquire some more at once. Secondly, the promoters might themselves wanted to see for how things in this new direction pans out for them and hence might have increased to just 38%. This is however less likely because as per what I have seen, the management is a very capable one and have till now always delivered more than what they had promised in Annual Reports or other Public Appearances such as interviews. Also, as we can see. The promoter’s confidence and intent is very clear. They have been constantly increasing their stake. They have increased from 38.11% to 40.78% and then have again added in the beginning of Oct making it a 44.08% (would be updated in SH Pattern only before Q3 results). So, this is a green flag for me. Also, one major point, Mr. Raj Kumar, a public shareholder holds 17.44% ever since the business restructuring happened and added this at the same period (June 2020) when the promoters increased stake from 5% to 35%. Similarly, Suman Rani added 2.34% at that time. These shareholdings have remained constant and if in any case they are related to the Promoters, the shareholdings can be considered equivalent to promoters’ confidence. However, this argument is highly biased however drawn from logics cited.

  3. Have no information of the gifter. The only positive in this is a further increase in Promoters stake by 1.36% to 45.44 by increasing SH for Mr. Vimal from 14.52% to 15.88% as the other promoters’ SH remains intact.

  4. Love the question. It has a distributor network of 2100+. How they manage them is difficult to answer from my end and would love if someone who has been employed into Best Agrolife or has contact with any employee there, can come forward and help here. For my satisfaction, I am confident with the managements capabilities after tracking them for an year. Secondly, their stakeholders’ first approach is good. Also, they also organize various camps/events/farm visits for farmers. This does not answer your question, I guess we can trust the management in this case as the numbers speak for them.

  5. Mr. Vimal Alawadhi and his wife are the biggest Shareholders. Mr. Vimal has been with the Best group for the last 20 years. Further, please visit the website for more details of promoters’ background using the link: Our Leadership Team | Best Agrolife Ltd

Disc:
Invested at 370, Doubled position at 740 and added more at 1170 today. Invested for long term for 10 yrs.
Views may be biased based on deep research on the company. Can become the next compounder in my opinion if the company continues to excel.

18

Thanks for the detailed answer. You seem to have taken a lot of time in composing it. However, your answers are based on the information provided by the company and not much critical thinking has gone into it.

For example, in promoter holding, you see the increasing promoter stake as a green flag. However, how much have they spent in acquiring this stake? One preferential allotment was for considerations other than cash (God knows what these considerations are), and then there was gift from an unknown source. What is the problem in disclosing the source of the gift? It seems they have spent very less or nothing to increase holding from 38% to 44%. Why would anyone not accept crores of rupees of shares for free?

The answers to my specific questions are not important. There are many more questions I can come up with. There are companies with red flags and then there are companies with many, many red flags.

5 Likes
19

I disagree with the statement when you say not much critical thinking had gone into it. Everything is not expressed here in writing obviously but all logic are derived from critical thinking assisted by other sources too. However, the points you raised is really alarming as these are some material facts. Definitely to be asked in the ConCall.

As per your third para, would request you to put forward the red flags which you are witnessing here. As this is the best Anti-thesis I was looking for and is realy helpful.

20

As I said, the more I read, the more red flags I see.

Consider this. In the Scheme of Arrangement dated 23 May 2020, the information about the swap ratio of shares between the Transferor and Transferee companies has been withheld (only upto page 6 of 22 have been made public).

Can anyone find out how much amount was paid by the new promoters to acquire the 38% of the shares in June 2020 quarter? All I see is inter-se transfers post amalgamation. Please correct me if wrong.

I will keep the questions coming as we go on.

1 Like