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Equity Research: Insecticides (India) Ltd
Insecticides (India) Ltd. (IIL) is one of India’s leading manufacturers of Agrochemicals. It provides farmers with a range of products for their crop protection requirements. It also owns the prestigious “Tractor Brand” which has gained great popularity in the farming community. It has state-of-art manufacturing facilities located at Chopanki (Rajasthan), Samba & Udhampur (Jammu & Kashmir) and Dahej (Gujarat). It also has technical synthesis plants at Chopanki and Dahej which provides the company with competitive advantage by backward integration. The company also prides of having great R&D capabilities and technical expertise to provide farmers with effective and innovative products. IIL foundation, an initiative by IIL, is involved in imparting knowledge to farmers regarding modern agricultural practices to improve their crop output.
Insecticides (India) Ltd. (IIL) is one of India’s leading manufacturers of Agrochemicals. It provides farmers with a range of products for their crop protection requirements. Insecticides owns the prestigious “Tractor Brand” which is very popular among the farmers pan India. The largest selling brands include Nuvan, Lethal Gold, Hercules, Pulsor, Green Label, Hakama, lethal super etc. Company has flexible manufacturing approach with a combination of in-house manufacturing as well as an outsourcing model supported by strong in-house R&D. Company has diversified revenue streams with 53% coming from insecticides, 33% from herbicides, and 11% from fungicides in FY22. Revenue diversity is augmented by presence in both branded formulations (65%) and institutional sales (26%). The large product base in agrochemicals will enable diversification in revenue streams through new product launches.
Product Freshness Index
IIL is committed to launching new products to keep in touch with the changing needs of the Indian Agricultural market. The below graph depicts Revenues from new products launched till date since FY18.
*The total Revenue from New products launched from FY13 to FY17 is INR 11,440 MN
*There is decline in total revenue generated from new products from FY 19 onwards, due to ban in sale of product “NUVAN” by the government, whose sales revenue has been included in preceding years.
IIL In-house R&D centre recongnized by DSIR, Ministry of science & technology, New Delhi: focuses on reverse engineering of off patented products, development of new formulations, recofriendly & ready mic solutions for farmers, developing new technicals (active ingredients), optimizing parameters for process of technicals for cost reductions, works on effluent treatment of minimize cost, replacement of toxic solvents, contributes towards the growth of indian agriculture, process development for import substitution & registration of products.
Shinwa is a Novel insecticide that effectively controls the lepidopteran pests and Thrips, in variety of crops. Shinwa provides a better control by quick knockdown effect and the duration of control is also better than other available insecticides. Shinwa is a promising product for IIL as this will open avenues to a larger market in variety of crops like brinjal, okra, chilli, tomato, cabbage and red gram etc. The revenue contributed by Shinwa was Rs. 77.75 Lakhs in Q4 FY22.
The company launched 2 new herbicides “Hachiman” & “Oxim” in technical collaboration with Nissan Chemical Corporation, Japan during Q2 FY 22. The company is pleased to state that the products have been very well received by the market and are exhibiting greater prospects for growth. The revenue contributed by Hachiman & Oxim is Rs. 215.54 MN and Rs. 23.08 MN in FY 22 respectively.
On Jul 07, 2022, Insecticides (India) said that it has been given the GLP (Good Laboratory Practise) compliance certification for one of its Research Lab at Chopanki, Rajasthan by National Good Laboratory Practice (GLP) Compliance Monitoring Authority (NGCMA) of Department of Science & Technology (DST), Government of India. This is a highly coveted accreditation so far awarded to just 51 labs in India. IIL's Chopanki, Rajasthan-based lab is now the 52nd in India to receive this Certification. Insecticides’ three QA (Quality Assurance) Labs & QC (Quality Control) at Chopanki, Dahej and Samba have already been recognised by the National Accreditation Board for Testing and Calibration Laboratories (NABL) which shows its adherence to the standards and process in the pursuit of the best quality products.
Govt.’s thrust on doubling farmer’s income by 2022 led by (a) higher MSPs for crops (average increase of 35% across crops in the last 5 years) (b) increased irrigation coverage (c) better procurement efficiencies. The efforts to boost crop yields and farmer’s awareness of crop protection benefits will drive domestic demand of agrochemicals.
Agrochemicals worth ~US$ 6bn are going off patent globally by 2030. The generic companies especially in developing countries would be major beneficiaries as a) these molecules already come along with better efficacy to fight against pest and have better market and target crop, hence it becomes easy for generic players to leverage on their distribution network b) generic players break the exclusivity of molecules/companies, hence there remains no pricing edge for product and it becomes more easier for farmers to adopt to that product. It augurs well for domestic agrochemical players, as it would result into opening up of huge opportunity for domestic companies both on domestic formulation as well on exports front.
In the last few years global agrochemical industry has witnessed drastic shift in consolidation of their functional and operational strategies. The industry is currently being controlled by four big players (as against six players earlier) commanding a lion’s share of 55- 60% in the global agrochemical market. Consolidation in the global agrochemical industry offers additional opportunity to domestic players
Stringent environmental norms led to closure of environmentally non-compliant agrochemical manufacturing facilities in China. We believe, India is likely to emerge as an alternative procurement base for global agrochemical industry primarily led by a) available resources; b) favorable cost dynamics and c) availability of technically skilled & cheap labor.
Commenting on the performance, Mr. Rajesh Aggarwal, Managing Director, said: “The Company has reported a strong financial & operational performance, spearheaded by its export sales repertoire and backward integration initiatives. The Company has recorded revenue from operations of Rs. 2,779.80 Mn in Q4 FY22, and Rs. 15,039.58 Mn on an annual basis, delivering a growth of 8.75% on a quarterly basis & 5.90 % on an annual basis. Revenue growth was driven by following:
We are extremely pleased to announce that we have surpassed our export target for FY22 by leaps and bounds and closed the fiscal year with an export revenue tally of Rs. 1307.57 Mn. The Company delivered EBITDA of Rs. 338.45 Mn in Q4 FY22 with margins of 12.18%, and Rs 1696.77 Mn. for FY 22 with margins of 11.28% annually.
We expect a very positive performance from our export segment in the coming fiscal year wherein we expect our export turnover of ~Rs. 1,307 Mn in the current Fiscal year to grow to 1.5X in FY 23. The company plans to capitalize on the strong demand for its products in export market mainly by establishing its footprints into new geographies like Europe & NAFTA markets and strengthening its hold over existing markets in Asia, Africa and Middle East. We are also in process of generating data and initiating registration processes for our products in some of the highly regulated markets like Brazil, USA & Europe.
The Company’s sustained efforts in backward integration to reduce dependencies on sourcing of technicals from China has started to yield benefits. The Company plans to add new intermediates in its newly developed technical synthesis plant at Dahej, Gujarat. These intermediates will be used to manufacture technicals which will act as a substitute for several imported inputs.
Backed by the company’s strong R&D capabilities, we are in the continuous process of developing new generation molecules to replace old generics with new, safe & more effective molecules. We are also working on developing certain combination/mixture products for the farmers. As we continually innovate, we are in the process of improving our existing biological products and adding new biological products, keeping in mind the rising demand for organic farming. We expect to make considerable progress in these segments in FY 23.
In the course of the next fiscal year, the Management of IIL remains committed to achieve a sustainable growth in the company’s revenue and margins, consolidate all backward integration efforts to yield efficiencies in production and take other strategic measures so as to increase the long-term value for all its stakeholders.”
Insecticides has recently launched 1 novel patented product Shinwa with Nissan chemicals Japan. Shinwa is a promising product for the company as this will open avenues to a larger market in variety of crops like brinjal, okra, chilli, tomato, cabbage and red gram etc. It is a novel insecticide that effectively controls the lepidopteran pests and Thrips, in variety of crops. Shinwa provides a better control by quick knockdown effect and the duration of control is also better than other available insecticides. The company launched 2 new herbicides “Hachiman” & “Oxim” in technical collaboration with Nissan Chemical Corporation, Japan during Q2FY22. Revenue from Hachiman and Oxim stood at Rs 21.5cr and Rs 2.3cr respectively. Going forward, the company intends to launch 5-6 products in FY23. New product introduction and improving product mix will support company’s next phase of growth.
Company entered into a major planned expansion programme spanning over the two years that commenced in FY21. Company had spent Rs 48cr in FY21 and Rs 68cr in FY22. The expansions are aimed to increase capabilities at both technical and formulation units in Chopanki (Rajasthan), Dahej and Dahej - SEZ (Gujarat). Major capacity expansion took place at the Technical Synthesis plant located at Dahej (Gujarat) that is expected to commence operations in Q2FY23. The company plans to manufacture new intermediates with this capacity expansion that will be used for captive consumption going forward.
Insecticides has collaboration with large MNC players such as Momentive US, Nissan Chemical OAT Agrio Co and Nihon Nohyaku in Japan. It has tie-up for Agrospred Max for silicone based super spreader with Momentive US. Company has marketing tie-up for specialty product PULSOR, Fungicide, HAKAMA, selective Herbicides, Kunoichi, Miticide with Nissan Chemical Corporation. It has tie-up for Suzuka, Hakko and Aikido with Nihon Nohyaku, Japan. Company has tie-up with OAT Agrio for specialized product for Seed treatment, Root Bead & Tadaaki.
In March-2021, board had approved buyback at max price of Rs 575 per share, totaling to Rs 60cr through open market. In Aug-2021, the company announced closure of the buyback. The company had bought 9.35 lakh equity shares or 82% of buyback size at average price of Rs 525 per share. It spent Rs 49.2cr in the said buyback. Post that, promoters’ holding increased to 72.2% from 68.9%.
Management expects revenue to grow in double digit by FY23, mainly driven by expansion of facilities, addition of new generation products and adding significant number of product registrations. In FY22, operating margin improved due to better product mix, cost optimization measures and backward integration for certain raw materials. Management has a target of achieving more than Rs. 200cr of revenue through exports. This will be achieved by penetrating in new geographies, obtaining a higher number of product registrations in existing countries & adding new relationships with overseas players through contract manufacturing. Management expects to launch 5 to 6 new generation products in FY23. A better monsoon forecast by Skymet this year should boost growth outlook of agri inputs. Insecticides has a strong pipeline of products which should drive revenue and net profit in the coming years.
We anticipate the company to profit from the ramp up of new products following capacity expansion, increased export revenues, and perhaps even an increase in the percentage of branded products (Maharatna Brands). In the following two to three years, management expects exports to contribute 20% of the topline. On the strength of recent launches and products launched in the past 2 to 3 years, which are anticipated to drive growth in the next 2 years, we continue to be optimistic about the firm. Over the period of FY22 to FY24E, we project a revenue CAGR of 11%. The stock is trading at 14x FY23E EPS at CMP.
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