IIL – All Set to Capitalize from Make-In-India and Government’s focus on increasing Exports

India’s premier crop care company and the owner of the popular Tractor brand
International footprint expansion and new product registrations are future growth drivers
Immense growth potential in India

Insecticides India Ltd. (NSE: INSECTICID) is one of India’s leading manufacturers of Agrochemicals. It is a leading crop protection company in India. The company engages in the manufacturing of insecticides, weedicides, fungicides, and PGRs for crops and households. IIL has a presence both in national and international markets. Its products are mainly sold under the Tractor Brand from over 60,000 retail outlets in India and in more than 30 countries. Insecticides account for ~50% of IIL’s revenues, followed by herbicides (more than 30%) and fungicides (~10%), and biologicals and plant growth regulators (~3%). The company also has a presence in both branded formulations (70%) and institutional sales (26%).

Source: Annual Report

IIL Advantages

i) Full range of production facilities and wide range of product portfolio

IIL has a product range of more than 100 products that include agrochemicals, household pesticides, and biological products. It also sells technicals and formulations to the companies who are in the business of formulations. The company has more than 120 formulations and 15 technical assets in crop protection solutions and products. It has three brands which are in the Rs.75 crores range and 5-6 brands which are expected to fall in the Rs.50 crores range soon.

IIL has one of the largest fully automated formulation facilities in the country with well-defined control systems. It has two technical synthesis plants, six formulation plants, and one biological plant. The company’s facilities are capable of manufacturing all kinds of different formulations of liquid, granules, and powders. In addition, it also has four different R&D centers.

ii) Capacity Expansion Plans

Insecticides India is planning to spend Rs. 680 million towards expansion, focusing on technical and formulation units in Chopanki (Rajasthan) and Dahej (Gujarat), in FY22. It will benefit from backward integration capabilities at Dahej that will reduce dependency on Chinese raw materials in the long run. The company has also received a patent for the invention of a herbicidal formulation containing “Pendimethalin and oxyfluorfen” for 20 years (from 17th April 2017). It is also adding new molecules and products to its products portfolio and looking at replacing old products having a possibility of a future ban.

iii) Balanced Product Mix

IIL is growing through new product launches. It recently launched two products in collaboration with Nissan, Japan. The company’s Q3 exports grew to 15% from 5% in the year-ago quarter and 8% in 9M FY22 from 4% in 9M FY21. Revenues also improved owing to a better product mix focusing more on Maharatna Products which now account for over 50% of sales. Other branded sales accounted for ~40%. IIL is phasing out generic products (high volume low margin) and introducing new products in the Maharatna category to move up the value chain. The company is also focusing on launching new products to address the changing needs of the Indian agricultural market. Some of its new products of 2021, such as Master Stroke have contributed roughly Rs. 5 crores, Dominant ~Rs.20 crores, and Tadaaki ~Rs.11.8 crores in the second quarter of FY22. Insecticides also launched Lethal Gold and Lethal Granules in the generic segment after the ban on its two largest brands Nuvan and Thimet.

iv) Growing Indian Market

With 20+ years of experience, IIL has built a reputation for quality, and farmers trust Insecticides to produce healthy crops. The company also works closely with farmers to understand their needs and land’s topography and design tailor-made products.

With India’s growing population, there will be an ever-increasing demand for food, and given rising health consciousness, people will focus on healthy food consumption. As such, today’s farmers need to be well versed in sustainable crop development and large-scale production. India’s consumption of agrochemicals is very low compared to other countries. Given the rise in food demand, India’s agrochemicals are expected to play a pivotal role to enhance the production capacity of food grains in the country. The Indian government is already stressing biochemicals and increasing exports, in tune with its Make-In-India movement and PLI scheme. These are strong tailwinds for Insecticides India Ltd.

Challenges

Challenges related to agriculture such as the presence of fragmented lands, unpredictable rains and weather conditions, dependency on monsoons, government regulations, etc. affect the demand for agrochemicals in India.

Large working capital requirements, regulatory frameworks (import-export policy, ban on key molecules), high competition, etc. are other challenges for the company.

Future Opportunities

IIL has a sound track record of successful new product launches. The company is expected to launch two new products in the fourth quarter of FY22. The management expects the top line to grow by ~10% for FY22, driven by facility expansion, the addition of new generation products, and increasing product registrations.

Source: Annual Report

IIL is targeting a wide international expansion and expects to work in more than 25 countries this year and is successfully bagging registrations in different countries. The company is targeting exports to account for ~20% of total revenues focusing on new geographies like East & West Europe, Africa, & CIS & NAFTA markets, particularly Canada.

Valuation

IIL has a market capitalization value of Rs. 1,300+ crore. The company has a 72% promoter stake with no pledged percentage. Its ROE and ROCE are decent near the 12% and 13%, respectively as of Mar’21. The company’s shares are currently trading ~22% below its 52-week high price, and have gained by ~137% in the last decade. Insecticides India has a strong capital structure with limited reliance on external debt. The company bought back shares worth 60 crores in the open market last year.

The company reported a net profit of Rs 8.15 crore on revenue of Rs 314.64 crore for the quarter ended December 2021. For the nine months ended December 2021, the company reported an 18% increase in net profit. EBITDA margin for the quarter was 5.92% against 5.04% for the previous corresponding quarter. The net Profit margin was 2.63%.

Source: Stocx.in

Conclusion

The Indian pesticide market is estimated to grow at more than 3.8% CAGR during the period 2021-26. Agrochemicals are expected to play a major role in improving the average crop yield per hectare, given the declining total available arable land per capita in the wake of increasing urbanization. Insecticides India has a proven track record of successful new product launches and enjoys a leading position in the domestic market as well as a growing presence in the international markets. The company is well poised to grow from growing demand in the food industry as well as a pro-manufacturing government at the center.

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