Insecticides India A stock with good Opportunity size

Dear All,

I like Insecticide India due to

  1. Ethical promoters with good reputation with superb execution track record. Have checked with multiple sources and their integrity confirmed from all
  2. 75% promoter stake with no pledging
  3. 28% ROCE even with big capex. Now that capex is over ROCE should further improve
  4. Huge opp size in field of pesticides with India consumption at a paltry 500 gram per hectare vs 1.5 Kg per hectare in rest of world
  5. 4000 distributors n 50000 dealers
  6. Dahej plant now stabilised sincen contributing big time to top line n bottom line as is evident in Q1 figures
  7. reasonable valuation at fwd PE of 10 for FY 15
  8. IIL was amongst only 14 cos identified by Ambit in its Cusp of Greatness report with a track record of growth 15% ROCE n 10% in top line for last 10 years yet was dropped only for small market cap which is still small at 700 Crore. Against this turnover of 1250 Cr is expected for FY 15
  9. Branded play with company having 20 big brands and employing the services of film stars like Sunil Shetty n telly stars to increase the brand value
  10. LIC having 6% stake acquired last year.
  11. DE ratio at 0.94 to come down as capex is over
  12. investment of 100 cr in R n D over 5 year period in collaboration with Japenese co Otsuka


Vivek Gautam

The presentation enclosed is comprehensive n opens up the huge potential in the agrochemical space.

Once the stock crossed 1000 Cr marketcap n turnover it will attract the attention of lot many institutions. Already LIC nad Fidelity North star fund have approx 9-10 % stake in this fast growing co which has shown consistent growth over last 10 years.

Views Invited .

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Could not figure out how you arrived at a ROCE of 28. What adjustments did u make? I am getting a ROCE of only 16.

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3 year ROcE was around 27% . Now with capex over it should increase further.

Incidentally SBI cap have come out with a research report with target price of 898 for Inscticide with 33% Eps growth over FY 14-17 as it trades at 60% discount with peers with a 12 PE target of 898.

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Could not understand the term 3year ROCE. The company has had negative cash flows most of the time inspite of having good brands. What might be the reasons? Do you think there is a radical shift in the basic business model?

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ROCE = EBIT/Net assets . Net current assets at FY14-end are 260 Crs as per the link shared by Vivek in first post. Maybe you took total assets for your calculations?

Negative cash flow from operating activity is a question-mark. The company might be selling its products on credit maybe. Its a negative point I guess.


I had used screener for arriving at 3 year average ROCE of 27%.

Co had undergone heavy capex at Dahej n Rajasthan projects which may have lowered the return ratios . As is evident from Q1 result that phase is over and now the ratios shud improve drastically.

Only thing I find a bit disconcerting about co promoter is their over enthusiasm in giving interviews but so far this entrepreneurial co has walked the talk.

Cash flow ?

SPA report

We met the management of Insecticides India (IIL) to get a feel of company’s strategy amidst rising risk of reduced monsoon (as a result of El Nino) resulting in lower crop production & decline in use of agro chemicals. IIL, promoted by Hari Chand Agarwal & Rajesh Agarwal, is engaged in manufacturing of Formulation & Technical agro-chemicals and has more than 110 formulation & 10 technical products in its portfolio. IIL has formed a JV with OAT Agri Techno to focus on research & invention on new agro-chemicals. Given below are the key takeaways from the visit:-

Targeting 35% growth in top-line in FY15

The company is targeting ~35% growth in top-line in FY15 on the back of higher sale of technicals from Dahej plant, which the company had started recently. IIL is planning to ramp-up the utilisation at Dahej plant to ~80% in the current year which was ~40% in FY14. On the margin front, IIL expects EBITDA margin to hover around 10% (up 54 bps YoY), on the back of higher operating leverage. The company is planning to launch 1 technical & 3 formulation products between FY15-16. The technical product would be an insecticide & one of the formulation products would cater to the cotton crop.

3 pronged strategy to improve market share

IIL enjoys domestic market share of 5%. The company has 3 pronged strategy to improve market share, which are as follows- (a) Brand establishment- IIL has a policy of acquiring “high recall but off the shelf” brands. It then re-launches it & turn into leading brands through a mix of good product quality & intense advertising. It has acquired leading brands from Montari industries & Monocil brand from NOCIL and had turned Lethal & Monocil into success stories. It also adopts umbrella strategy, wherein it relies on product extensions of established brands for new application & crops. (b) Brand collaboration- It has tie-up & collaborations with leading global agrochemicals players like AMVAC (Technical collaboration) & Nissan Chemicals (Marketing tie up). © R&D- IIL, with its JV partner OAT, has set up a R&D Centre to focus on research & invention on new agro-chemicals. The JV has been granted 1 process patent & over 8 process patent has been filed. IIL intends to leverage

its expertise in successful brand launches, enhanced R&D focus and expanded manufacturing capacity to fuel its future growth.

Capex & Debt outlook

IIL has recently started the Dahej facility by investing ~INR 600-700 mn. No major capex is lined up going forward and it intends to invest ~INR 100-150 mn both in FY15 & FY16. Debt currently stands at INR 2426 mn of which ~INR 400 mn is ECB loan & rest is CC facility. IIL is likely to repay ECB of ~INR 70-80 mn both in FY15 & FY16.

Outlook & Valuation

Agrochemical industry is likely to grow at ~12%-13% over the medium to long term aided by need to increase the crop yield, deeper penetration of products & oppurtunities from patent expiry (~$ 9.3 bn worth of patented products are expected to expire between FY10-20 & patents of ~ 29 active ingredients of agrochemicals are expected to expire between 2013-2017). Prevention of crop losses is the immediate requirement to bridge the demand-supply gap in food grains, which necessitates deeper penetration of agrochemicals.

IIL with its vast distribution reach (50000 dealers, 3200 distributors & 25 Depots), large product portfolio, focus on R&D and strategy of brand collaboration & brand establishment is likely to be a key beneficiary of thrust on improving agriculture productivity in the country. The company is eyeing ~35% growth in top-line aided by higher sale of technicals in FY15. Top-line & bottom-line has registered a CAGR of ~23.0% & ~8.9% between FY10-14. The stock is trading at a PE of 12.8x its FY15 earnings.

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FCF gains attest compelling valuation case, Initiate BUY

Insecticides India Ltd., (IIL) has emerged as one of Indiaâs leading agrochemical manufacturer and currently commands 6.7% market share (6th largest amongst listed space). We see a compelling valuation case ahead from a) utilisation scale-up from Dahej, b) broadening of sales in speciality segment, c) RoCE expansion accruing from rising margins and d) a near- complete capex implying improved FCF generation. Our estimates suggest 33% EPS growth over F14-F17e unlike 14% seen over F11-F14. We find IILâs reach and B/S strength as ripe enough for strategic tie-ups that can trigger a further upside. The stock on PEG basis trades at 60% discount to peers. Initiate BUY with a 12xP/E target price of Rs898 (55% upside).

Adaptable business model and improving margin trend: We estimate sales to grow at 18% CAGR over F14-F17e largely driven by a) faster growth in herbicides like Hijack and Hakama @ 20% CAGR & technicals at @ 27% CAGR and b) launch of generic Diafenthuron. Increasing revenue share from speciality (2-3x higher margin), herbicides and focus on B2B together with Dahej operation turning profitable augurs well for ~100bps EBITDA expansion per year over next few years.

Larger product basket improving on execution: Our channel check across regions indicates that IIL has shown good traction despite possessing an average portfolio with ~90% of their products having a clutch of ~15 generic competitors.

Capex cycle at an inflection point: Significant investment in manufacturing capability (nearly 85% of F14 total gross block) between F11-F14 led to fall in RoCE (down to 13% from 19%). With signs of stability tests succeeding (for high value products), we expect Dahej scale-up (to 65%/75% by F16e/F17e) and no major capex plans in mid-term to enhance RoCE/RoE back to earlier levels.

Market concerns on cash flow receding: Operating leverage from Dahej, easing liquidity and capex normalising are in our belief likely to positively surprise the street on operating cash flow and FCF in F16e/F17e. As earlier setback at Dahej remains fresh in investor minds only a credible efficiency uptick would ensure greater valuation upside, in our view.

Key risks: Deterioration in B/S (working capital), currency volatility, and a mark

Excerpts from SBI Capital Report

Hi vivek…are you still tracking insecticides india??
Even after the bonus issue…the valuations look compelling. I have not gone into great detail but considering the company’s track record…looks like a steal at current valuations.( Conservative Mar 16 PE of 12-13)

No i am not tracking it now

Key highlights of Conf Call by Capital Mkt
Navratna brands contribute 50% of the branded business sales. Pulsor and Hakama continue to remain the top two brands in the Navratna portfolio.The portfolio of newer brands called as Super 11 has contributed ~15% of branded sales. Looking at the good traction in the Super 11 portfolio, mgmt is confident of achieving 75-80% of branded sales from these two product portfolios in next 2-3 years.The company under took routine maintenance shut down at its technical facility. The shutdown was extended in the wake of poor demand on the back of deficient rainfall. This has hurt company’s margins during the quarter. The manufacturing facility is expected to restart operations from Dec’15.Currently, company manufactures 18 technical’s and is expected to scale it up to 24 by within next 12 months.
The company has envisaged robust plans to launch at least 14 new innovative products in the next 12 months. It has six new technical’s sitting in the pipeline and will be rolled out from Dec’15 onwards. Technicals are high margin products and will help to improve the margin profile of the company. The company also expects to launch six new products in the branded formulation segment from CY16. Apart from this, mgmt indicated that it is on track to launch two new 9(3) molecules in the next 12 months.The company has begun exporting to Middle East and African countries along with Pakistan and Bangladesh. For FY16, the mgmt has guided a modest export revenue of Rs 20-25 crore.

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Just take a look at the inventories and trade receivables over the last 3 years. If the 2015 monsoon was worse than the previous 1-2 years, we don’t know what happens to the inventory and the ability to collect receivables in FY 2016.

I have not done detailed analysis to find the intrinsic value. But these two stand out as fear factors, especially when they are at a D2E ratio of almost 1, after the current dilution. Hope they don’t run into tight working capital. Integrity of management is tested only when there is a working capital issue.

Please take another look.


Company has done a QIP issue, and using very minimum working capital limits currently, and in some banks their working capital limit utilization is nil as well.

trying to blow some dust from this thread. story was covered in cnbc’s make it big - .

Still trading at market cap to sales ratio of approx 1. But their operating margins are one of the lowest.

disc: minor position at 350 levels.

If any company in agriculture sector is posting this kind of results when monsoon is so good and agriculture economy is picking up, better to stay away from it.

Apart from that , all the companies suffered during GST in last year Q1. So this year results should automatically be better due to low base effects.