Punjab Chemicals

@sensaptarishi and I were discussing Punjab chemicals as an interesting stock idea in the agchem space. I will summarize my understanding of the company and we can see if there are others interested in collaborating.

History: Company went on an aggressive debt funded acquisition spree in 2003-08 to acquire marketing capabilities in agrichemicals in developed markets. This backfired in 2008 when there was a global slowdown and one of their factories had a large fire event, leading them to default on their debt obligations. Things started changing around 2016 when there was a change in their business model, from marketing pesticides on their own to manufacturing active ingredients (or technicals) for other companies (mostly UPL at that time). A lot of noncore assets (offices, leased factory, etc.) were divested and promoters lent money (through ICDs) to company for settling their debt.

This started reflecting in financials where interest costs decreased from peak of 50 cr. in FY16 to 13 cr. in FY21, and margins approached double digits.

In 2019, they had a fire incident in their main agchem facility in Derabassi facility which led to muted FY20 numbers. Performance improved in FY21 and margins expanded to 14%. FY22 has been a bumper year so far, where sales has grown by 30%+ and margins have approached 15%.

I will now summarize my understanding of the company’s operations. They have three main business divisions

  • Agrichemical technical manufacturing (60-65% of sales)
  • Intermediate manufacturing (~20% of sales)
  • Industrial division (food grade phosphoric acid) (<10% of sales)

Agrichemical Technical division

  • Enters into long term contracts (5-year) with MNCs (main customers are UPL, Nippon Kayaku, Adama, Corteva, Kuvera) to manufacture AI for finished formulations. This gives revenue visibility + attractive gross margins (38-42% vs generic AI gross margin of 25-30%). Company claims that shipping costs are included in these contracts
  • They have 5-6 molecules making 100 cr.+ sales (major ones: Metamitron, Metconazole, Diflufenican)
  • 30% revenues come from patented molecules (currently 4 molecules, I don’t know the names)
  • Capex is partly funded through customer advances (50-50 split)

Intermediate division

  • Have established new relationships with pharma companies (Mylan, Laurus, Divis) to manufacture advanced intermediates to supply to European markets. These do not require EU audit, however their customers do regular (i.e. pharma cos) audits
  • FY22 revenues should be 130-140 cr. These products are import substitution in nature

Industrial division

  • Has a capacity in Pune that makes food grade phosphoric acid that is supplied to beverage manufacturers (Coca, Pepsi). They have been suppliers to their India operations for 20+ years
  • Earlier, supplies were limited to their domestic factories (45 cr. annual revenues in FY21). Recently company has managed to get supply contracts to their other Asian factories (Korea, Singapore and Thailand) and this segment is currently doing 80 cr. annual revenues.

Growth plans
FY21 and 9MFY22 sales growth has been strong at 23 and 30% respectively. FY22 growth has largely been due to 3 new products (one with Nippon Kayaku, one with a Singapore based company which mostly likely is Syngenta, and the last one is an Indian customer). Contribution from these 3 new products has been ~20% of FY22Q3 sales (i.e. around 50 cr.). So on annualized basis contribution would be around 200 cr.

Management is targeting 1500 cr. revenue by FY24/25, 60-65% of this should come from agchem (900-1050 cr.) with remaining coming from intermediate and industrial division. I feel they can do 1400-1500 cr. sales by FY25 and I am sharing the maths around it below.

Projections for FY25
FY22 intermediate sales ~130 cr., this can increase to 250-300 cr. once their validation batches with Divis/Laurus/Mylan go through. These are new products and import substitutes (and don’t require FDA/EU audit). They have not disclosed product names.

FY22 Industrial sales ~ 80 cr. (vs 45 cr. in FY21), this should increase to 150-200 cr. given that they have started supplies to other Asian factories of Coca and Pepsi. Currently, they are struggling for capacity and are looking to lease out another factory in Pune. Management has mentioned that Coca/Pepsi want to increase supplies from Punjab from the current 1-2% to 15%, I will take the 15% number with a pinch of salt. However, even an increase to 4-5% can mean sales of 200 cr+

Now, this leaves 1000 - 1100 cr. from the agchem division [1500 – (250-300 from intermediate) - (150-200 from industrial)].
To reach this level of sales (from FY21 level of 513 cr.), they need to have a portfolio of 10-15 molecules (assuming 70-100 cr./molecule). In FY21, they had ~5 molecules contributing 100+ cr. In FY22, they commercialized 3 new molecules. This implies they need to maintain sales for these molecules + add a couple more molecules in the next 3 years which is very plausible. So the main bet in this story is strong sales growth in their agri division + margin increase.

To put a bit of context, exports has been growing at very high rates (20-50% CAGR) for a large number of domestic technical manufacturers since FY18 (details below). Most of this growth is due to supply chain diversification strategy followed by the innovators (who control 75% of global agchem market).

The current Mcap of Punjab is ~1740 cr., if they achieve 1500 cr. sales, then there is quite a bit of money to make. Most of the large agchem technical exporters are currently valued at 4-6x EV/sales (except those with past governance lapses like Meghmani or Heranba). For Punjab to get those multiples, margins should increase to the industry standard of 18-20%. I feel Punjab can do much higher margins because their gross margin (of 40%) is higher than its peers. Most companies make 30-32% gross margin except PI which makes 45% kind of gross margin.

I will summarize my work on their molecules and major customers in the next post.


Geographical revenue breakup: Most export growth is coming from Europe (which is also the largest and most lucrative agchem market).

Sales (cr.) FY17 FY18 FY19 FY20 FY21
India 167.85 183.82 206.79 195.35 242.26
EU (including UK) 103.41 167.12 198.22 174.62 219.10
Japan 53.02 61.01 92.16 88.70 73.48
Others 199.00 68.17 120.75 79.78 130.00

Customer concentration: UPL has been instrumental in bailing Punjab Chemicals out by buying their noncore and overseas assets, and with giving them a lot of job work. UPL contribution to their sales has been decreasing gradually from 50% in FY18 to 43% in FY21. So UPL is still a very big customer.
Revenue from UPL

  • FY18: 50%
  • FY19: 50%
  • FY20: 40%
  • FY21: 43%

Product concentration: Highest chunk of sales comes from 2 products (metamitron and metconazole). Its contribution over time has decreased, but its still quite high at 31% in FY21. As newer products gain traction, this should further come down.

  • FY18: 43%
  • FY19: 45%
  • FY20: 40%
  • FY21: 31%

Molecule wise notes


  • It’s a triazole fungicide originally discovered by Kureha, Punjab supplies it to Kureha under CRAMS along with Rallis.
  • Current installed capacity for Punjab is 240 MTPA, for Rallis it is 500 MTPA.
  • In terms of competition, Meghmani has applied for EC for a 2400 MTPA capacity (almost more than current market size). Astec has applied for EC with proposed capacity of 240 MTPA. Other players coming in with capacity are Anupam Rasayan, Uma Organics (credit: @T11). One thing to note is the end market is still largely controlled by innovator (in this case Kureha and its marketing partner). And once the innovators get their registration, they cannot change the supplier easily, and it takes a very long time (3-8 years) for a new registration. This implies that market share shift is much more gradual than sudden (unlike generics pharma). So, just putting up large capacity doesn’t allow them to sell in Europe.
  • Usage: Controls a range of fungal infections cereals, canola, rice, maize, soybeans, sugar beet, cotton, stone fruit, nuts, peanuts, ornamentals, and turf


  • Triazinone Herbicide, used against grass and broad-leaved weeds in sugar beet and fodder (developed by Bayer in 1975, patent expired)
  • Punjab has 800 MTPA capacity which post current expansion should reach 2700 MTPA. Most of this is supplied to European market which is controlled by UPL and Adama who together control 60-70% of market demand. Overall market size for end product is 900-1000 cr. and Punjab supplies 60-70% of EU demand (through sales to UPL). Punjab’s sales from metamitron technical (different from the end product) was ~160 cr. in FY21
  • Punjab’s technical is registered in Europe, Russia, Croatia, Slovakia, Belorussia. Additionally, Punjab has a 9(3) registration in India (for broad leaf and grasses) and was the first company to launch this product in 2018
  • Other global players: Bayer, ChemChina, Nufarm, SIPCAM-OXON Group, Ultra Group, Hutchinson Group, Shenda Chemical Industry, Nantong Reform Chemi
  • Domestic competition: Himani Group has applied for Environment clearance with proposed capacity of 4800 MTPA (2x of Punjab). Best Crop has applied for a 9(4) (generic) application for Metamitron in 2019.


  • Pyridine based herbicide (Punjab’s capacity: 300 MTPA)
  • Bayer is coming up with a new combination product. Punjab is only other company apart from Bayer and certain Chinese players (Chizhou Feihaoda, Jiangsu Huifeng Agrochemical) to make this product, and they are backward integrated with no China dependence
  • Indian competitors: Cheminova (185 TPA in Panoli; also has 9(3) registration in India)
  • Technical registered in Europe, Australia and Argentina. Formulation registered in Argentina

Prosulfocarb technical

  • Herbicide (Punjab’s capacity: 3’000 MTPA )
  • Commercialized in February 2021
  • Indian competitors: India pesticides, Hemani (5’000 MTPA)
  • Through technical transfer from Southeast Asia partner (probably same as Singapore company, Syngenta)

Bulk chemicals (oxalic acid, diethyl oxalate)

  • One of the largest players in India
  • Does 10-20 cr. annual sales
  • REACH compliant in Europe
  • Large capacity (10’000 MTPA for oxalic acid + 2’700 MTPA for diethyl oxalate)

Food grade Phosphoric acid (Pune industrial division)

  • FY21 ~ 45 cr.
  • FY22 sales should increase by 75-80%, FY23 increase should be 25-30%

Capacity breakup and expansion: Most of the current capacity is in bulk chemicals (~15’000 MTPA) where there is no planned expansion. All the expansion is happening in technical (expansion of 14’490 MTPA over existing capacity of 2’600 MTPA) and fine chemical divisions (expansion of 4’600 MTPA over existing 2’160 MTPA). So the company is moving from bulk chemicals to more value added technical manufacturing. Execution will be key for value creation.

Bulk chemicals (no planned expansion)

  • Oxalic acid (10’000 MTPA)
  • Diethyl oxalate (2’700 MTPA)
  • Sodium nitrite (1’800 MTPA)

Fine chemicals

  • Ethyl oxalyl chloride (1’080 MTPA + 2’120 MTPA expansion)
  • Ethyl phenyl glyoxalate (1’080 MTPA + 2’520 MTPA expansion)



Thanks Harsh for detailing the business lucidly, while the eminent turnaround and transformation to an agrichem contract manufacturer is visible but the company had to go through a lot of pain and restructuring to reach the current stage. One key thing to note in the restructure was that the banks did not had to take significant haircut and one of the step down subsidiary sale details i couldn’t furbish. The subsidiary had a sizeable turnover.

Business Restructure over the years

  • FY14- Started focusing on manufacturing agro chem at Derabassi –
    • New fungicide plant commissioned and started operation.
    • The product got dispatched under buy-back arrangement with a renowned MNC.
    • Dispose off non-profitable businesses.
      • Disposed off Agro Formulation for 12 cr
      • Leased out Tarapur Unit of Industrial Chemicals to UPL
  • FY15- Better operations due to improved RM contracts and new deals under contract led to positive operation cash flow
    • Sale proceeds from 1,50,000 shares, pledged with SBI by one of promoters repaid against total dues of Rs. 95 cr
  • FY16- OTS of debts with SBI by fulfilling the requisite conditions, payments of Rs. 45.50 crores and Rs. 3.58 crores
    • Office floors of the Company in Mumbai were sold.
    • Surplus land at Tarapur was disposed. Amounts realized from these sales were used to repay part of the debt
  • FY17- OTS with the Central Bank of India for outstanding dues
    • Settled to pay Rs. 16.03 crore against the total outstanding of Rs. 19.71 crore. The company paid initial amount of Rs. 4.01 crore rest will be paid in FY18).
    • SD Agchem (Europe) NV, completed OTS with SBI, Antwerp for settling its total dues of $2.66 million against restructured facilities availed for a compromise amount of $1.85 million.
  • FY18-
    • Sintesis Quimica, Argentina was sold to an overseas investor first after selling first to its step down sub- Additional provision for INR 210 toward former shareholder of Sintesis Quimica, via step-down subsidiary, this is sort of red flag as complete deal details were not furbished. I am still looking at details to get the detail.

Subsidiary performance:

FY14 FY15 FY16 FY17
SG Agchem Europe 15 16 19 5
Sintesis Argentina 92 148 169 112
STS Chemicals UK Defunct
Division FY18 FY19 FY20 FY21 FY22E FY25E
Agchem 371 495 391 513 680 1000
Intermediate 92 115 127 111 140 250
Industrial 25 30 37 52 80 150
Others 5 40 29 46
Total 488 640 555 676 900 1400

Division wise agchem has been the revenue driver as mentioned in FY22 as mentioned by Harsh, going ahead but the Intermediates and Industrial segment both are expected to grow along with the agchem as detailed by management in the concall. Detailing below the segment wise growth drivers

INR Cr FY22E Growth Driver Ahead
Agchem 680 20% of FY22 revenue is driven from orders from Singapore client and Nippon, in total 130-150 cr revenue expected from Singapore client and Nippon and 200 cr from Metaconazole in stable run rate basis after 2 years
Intermediates 140 New intermediate expected to commercialize from Q2FY23 onwards being supplied to Mylan, Laurus and Divis
Industrial 80 Growth driven by incremental order from Coca cola and Pepsi for food grade phosphoric in newer geographies

What has also been very commendable for Punjab has been their management of Working Capital specially receivables, this has helped the company fund the maintenance capex mostly through internal accruals. One can argue the payables are stretched but inventory days are also similar. They have hardly had to resort to external debt to fund the maintenance capex despite profitability remaining low.

FY17 FY18 FY19 FY20 FY21
Sales 536 496 643 550 678
PAT -20 17 17 11 49
Payable 112 108 112 86 106
Inventory 64 67 82 86 101
Receivables 63 42 63 48 80
Receivable days 43 31 36 32 43
WC Change -14 31 16 27
Maintenance Capex in Last 5 years 15 20 27 27 31

There was a recent CARE research report on Indian pesticides industry which provides very good data on broader industry landscape. Growth in pesticide exports has been ~14.4% (value wise) and 8.8% (volume wise) over FY17-21.

This report also summarizes working capital trends for major agchem cos. I am attaching them below. Punjab has the lowest working capital in the industry (15-20 days). This is because of their very low receivable days (~30 days). Inventory and payables are broadly in-line with peers (45-60 days).

Bharat Rasayan

Dhanuka Agri



India pesticides

Punjab chemicals

20220101_Care.pdf (1.3 MB)


Company came out with decent numbers, FY22 sales growth was ~38% and PAT growth was ~69%. Its important to understand future growth triggers.

FY23: They got registration for 2 new molecules which will be launched in Q2FY23. Additionally, they got registration of existing molecules in new geographies which should deliver growth. The FY22 new molecule launches contributed ~20% of sales.

FY24: Advance intermediate supplies to Laurus has been delayed as Punjab had certain supply chain dependence on China. So this has been delayed from FY23 to FY24. In agrochemicals, Punjab is expecting registration of 2 more molecules in FY23 which should then be launched in FY24.

So the launch math is:
FY22: 3 agchem products were launched
FY23: 2 agchem products will be launched (high visibility as their customers have got registrations)
FY24: 2 agchem products will be launched (registration has not yet come) + Advance intermediate supply to Laurus

The math still holds! I feel they are on track to get to 1500 cr. sales by FY25. At 17-18% EBITDA margins, this should translate to 250-270 cr. EBITDA. Current Mcap of 1600 cr. is still attractive.


Trying to understand cash generation for this company.

Although sales have increased CFO growth has not been commensurate with it. One wonders why? Has something changed in the terms of trade? Is there an explanation and would things look different going forward?



Inventory & receivables have also been growing steadily.




I think we should compare CFO with EBITDA and PAT (and not sales) to understand cash generating abilities of a company.

FY18-22 period:
Cumulative CFO ~ 240 cr.
Cumulative EBITDA ~ 389 cr.
Cumulative PAT ~ 177 cr.
CFO / EBITDA ~ 0.62x
CFO / PAT ~ 1.36x

Punjab has actually been generating much higher cashflows vs its peers. You can go through the posts mentioned below to understand this in more details.

Please let me know if you need any clarifications.


Thank you I did look at CFO to PAT in particular:


I was specifically referring to the recent trend, it is clear that there is lumpiness in the flows when we look at it on a year on year basis as opposed to a cumulative 4 or 5 year period. Perhaps it will mean revert as the next few years roll on. I haven’t checked the peers and if it does comparatively better on cash generation then that’s great. I am not invested and this was just an observation.

I personally use CFO to sales as a starting point to dig for any variations.

Thanks and all the best!


I personally think that CFO to PAT prior to FY21 here is quite irrelevant because the PAT base was so small. Almost single digits PAT. Further, for a long period of time the company was in CDR and there were numerous one off events related to that, so the financials altogether before FY18 are not representative of the business that exists today.