How will Bharat Rasayan Limited achieve next leg of growth?

Summary

Focus on high growth segments and implementing critical initiatives are expected to act as growth enablers for Bharat Rasayan Limited. Wide marketing and distribution network should help Bharat Rasayan Limited to see healthy revenue growth. Strong capital structure, and healthy debt coverage indicators should enable the company to make further investments.

Bharat Rasayan Limited

Bharat Rasayan Limited is in business of manufacturing pesticides. The company is a backward integration project to manufacture Technical Grade Pesticides and Intermediates which confirm to international standards. Initial public issue by the company in 1993 saw overwhelming response. Currently listed on NSE, this company became major stakeholder in Tata owned Siris Crop Sciences Ltd. and acquired it in due course.

Growth Enablers of Bharat Rasayan Limited:

·        Strong results despite challenges: In FY22, Bharat Rasayan Limited achieved a turnover of INR1,316.79 crores, exhibiting a rise of ~19.80% over previous year turnover of INR1,099.12 crores. The company earned a profit before tax (PBT) of INR234.82 crores and Profit after Tax (PAT) of INR177.13 crores in FY22. This growth was stemmed from strong portfolio, distribution network and brand equity. The company continues to make right and scalable investments to take business higher. It has made investments on expanding its manufacturing capacities, as it has set up new capacities for critical inputs as part of backward integration. The company has acquired more product registrations and thrust on R&D for development of relevant products for key markets. As at Mar 31, 2022, its cash and cash equivalent came in at INR33.49 lakhs in comparison to previous year figure of INR2,662.76 lakhs. Working capital management of the company is based on a well-organized process of continuous monitoring of receivables and inventories. Total expenses saw an increase of 23.01% from INR853.73 crores in FY21 to INR1,050.22 crores in FY22. Principal items leading to this increase include cost of material consumed, purchase of stock-in-trade, power and electricity, freight & forwarding outward, and employee benefits expenses. Increase in major raw material prices led to higher cost of material consumed, while power and electricity costs increased due to increases in prices & utilities.

·        Customer base continues to support: The company has large and loyal customer base since last several years, and several newer domestic and overseas customers have been added to its portfolio during FY22. It plans to increase its clientele in near future as it is committed to supply high quality product in a time bound manner. Moving ahead, the company focus remains on implementing key initiatives across functions to enable itself to face market challenges and leverage emerging opportunities. Apart from this, its focus remains on improving revenue growth and profitability due to high growth segments including seeds and nutrients. The company foresees strong untapped growth potential for India's chemical industry. Plans are there to make use of growth opportunities by remaining committed to maximize return on investment.

·        Focus on long-term investments: Despite impact of external and internal factors, investments to scale were made in FY22 which should support the company in long-term. In past year, investments were made for expanding manufacturing capacities, setting up new capacities for critical inputs and acquiring more product registrations. The company should be a key beneficiary given its distribution network and market position. Indian agriculture should continue to see growth, with an increase in investments and private funding. Bharat Rasayan Limited continues to work with industry peers and Indian Government to seek policy support. The company continues to generate healthy cash accruals and has no long-term debt outstanding. Apart from strong liquidity, it has free cash balance and liquid investments worth ~INR6.93 crores as of Sept 2021. It also has unutilised working capital limits of INR192 crore as of May 18, 2022.

·        Expectations of steady performance: The company should be able to achieve steady performance in upcoming years which should stem from strong portfolio, and distribution network. Focus of the company is now on protecting supply lines, serving demand, contributing to society and optimizing use of cost and cash. Despite near-term ambiguity, the company remains quite optimistic about medium to long-term growth of Agro chemical sector.

·        Stable outlook: Bharat Rasayan Limited plans to implement key initiatives across functions. This should support the company to enable to face market challenges and leverage emerging opportunities. Plans are there to execute initiatives focused on improving revenue growth and profitability. This should be helped by high growth segments like seeds and nutrients. The company's total expenses saw a decline of 13.69 % from INR989.11 Cr. in FY20 to INR853.74 Cr. in FY21. These expenses exclude depreciation and finance cost. Major expense items include cost of material consumed, purchase of stock-in-trade, power and electricity etc. Since progress has been made in optimizing these costs, the company should be able to achieve healthy growth rates. Industry continues to work closely with Indian government for required policy support and to make agriculture activities more organized. Transformative agriculture reforms should lead to quicker adoption of necessary technologies across agriculture value chain and should improve quantity and quality of agriculture produce. As a result, this should give rise to growth opportunities to seeds, crop protection and crop nutrition. The company focuses on implementing critical initiatives across functions to enable itself to face challenges and leverage emerging opportunities. While maintaining its focus on improved revenue growth and profitability, the company is likely to see growth from segments such as seeds and nutrients. It expects huge untapped growth potential for India's chemical industry and focuses on growth opportunities.

·        Industry overview: Indian agriculture continues to walk on growth path due to higher investments and private funding over past couple years. In India, agriculture sector makes up for a fifth of gross value added while more than half of population operates in agricultural and related activities. Growth in agricultural products including fertilizers stems from favourable policy environment. Sector should continue to grow over next few years as a result of higher investments in agricultural infrastructure including irrigation facilities, warehousing and cold storage. Factors including lower transaction costs, time, better port gate management and fiscal incentives should continue to add to this growth expectations. Indian agrochemical industry continues to be largest source of livelihood for ~58% of country’s population and growth of this industry ensures inclusive economic growth of India. Indian agrochemical sector has seen growth at an annual rate of 7.6% over past 6 years. Crop protection industry transformed significantly over past couple years due to changing crop mix trends and environmental regulations. Population growth, declining arable land, food security, and need for augmented agricultural productivity should continue to stem growth in this industry. Given Bharat Rasayan Limited’s market presence, the company should see improvement in its revenues from these sectoral benefits.

·        Investment rationale: Bharat Rasayan Limited continues should be supported by its integrated operations as it has its presence in entire value chain of pesticides. Apart from this, its wide marketing and distribution network and large number of product registrations and reputed customer base make up case for the company. It has comfortable financial risk profile due to growing scale of operations. Industry and policymakers plan to introduce newer technologies, enhance manufacturing infrastructure, and create proper policy environment to help improve productivity and foreign investment to increase share of agrochemicals in India’s GDP. As a result, agrochemical sector should emerge as a major global supply hub. To see competitive edge, Bharat Rasayan Limited plans focus on incorporating next-generation formulations into R&D capabilities and product mix.