Insecticides India

Insecticides India is likely to gain from the increase in production capacities. The stock looks attractive for long-term investors

 

INCORPORATED in 1956, Insecticides India (IIL) is one of the leading agro-chemical and pesticide manufacturers. The company is in the business of pesticides, weedicides, herbicides and other allied products for all types of crops and also household pesticides. The company benefits from its pan-India presence with a wide network of 50,000 dealers and 8,000 distributors.

   IIL has two formulation units: one at Chopanki, Rajasthan and the other at Samba, Jammu and Kashmir. Both units together have fully automated granule sections, power generation plants, liquid lines and chemical resistant reactors to produce high quality liquid, granule and powder formulations. Each plant's per day production capacity is 25,000 litres of liquid, 30-40 tonnes of granules and 10 tonnes of powder.

   During FY10, the major part of the company's revenue came from domestic sales while less than 1% was contributed by international sales. Brand sales formed 75% of the domestic revenue with the balance from corporate sales. With a diversified product portfolio focusing on all kinds of crops and household pesticides, 35% of the total revenue comes from the sale of three major products, namely Victor, Lethal and Thimet. The balance comes from a range of agro-chemicals in its portfolio.

GROWTH DRIVERS:

The company recently set up a plant at Udhampur, J&K, and at Dahej, Gujarat, with an investment of Rs 5 crore and Rs 50 crore respectively. The plants are expected to be operational between Aug '10 and Nov '10. Each unit will have a per day capacity of 25,000 litres of liquid, 10 tonnes of powder and 30 to 40 tonnes of granules. Also, the company has commissioned a plant near its Chopanki formulation unit for manufacturing technicals. This would increase the company's technical production capacity by 400% to 10,000 tonnes per annum. To increase its products base and market reach, IIL is in a continuous process of acquiring brands. Moreover, it gains from a wide distribution network that gives it a strong foothold in most of the major markets across the country.

FINANCIALS:

The bottomline of the company grew at a CAGR of 34% over the last five years. IIL's net profit for FY10 at Rs 28.2 crore grew 36% over the previous year. During the year, the company reported a 35% increase in its net sales to Rs 397 crore. Operating margin weakened by 60 bps to 8.9% owing to the high raw material cost, which as a percentage of net sales increased 700 bps to 56.7% compared to the previous year. Thanks to the healthy profit margin of 7%, the upcoming projects are likely to be financed by internal accruals. The
company has taken a loan of Rs 10 crore for funding the expansion plans. The current debtto-equity position of the firm stands at 0.2.

VALUATION:

At the current market price of Rs 240.4, the scrip is trading at 11 times its earnings for the year ended March '10. We expect the company's existing business to end FY11 with an EPS of Rs 23. Although of a small size as compared to its peers like Sabero Organics and United Phosphorus , given the introduction of new products and huge capacity expansion coming in place Insecticides India looks attractive for the long term.