IPO review of India Pesticides by ICICI Securities

Incorporated in 1984, India Pesticides is one of the fastest growing agrochemicals companies in India with key focus on manufacturing agrochemical technicals and formulations. Over the years, it has diversified into manufacturing herbicide and fungicide technicals and active pharmaceutical ingredients. The company has two manufacturing facilities in UPSIDC Industrial Area at Dewa Road, Lucknow and Sandila, Hardoi in Uttar Pradesh, spread across over 25 acres. As of March 31, 2021, the aggregate installed capacity of manufacturing facilities for agro-chemical technicals was 19,500 MT and formulations was 6,500 MT.

Increase in technical capacity bodes well for future growth

Over the next five years, ~$4.2 billion worth of technicals are expected to go off patent. Since India Pesticides caters to the generic market, this augurs well for future growth. The company has overall eight technicals under its portfolio currently, which is expected to increase to 16 over the next three years. It has been expanding technicals capacity by 10,000 MT with a total capex outlay of | 140 crore planned in the next two years. This would aid revenues for the coming years given that asset turn is estimated to be ~3x for the forthcoming expansion.

Healthy financial performance likely to sustain ahead

The company recorded revenue growth of 38% CAGR in FY19-21 supported by higher volume growth from the technical segment owing to better utilisation of expanded capacity. Since technicals are a high margin segment, higher share of technicals resulted in better gross margins and thereby OPM, leading to EBITDA growth at 67.5% CAGR and PAT CAGR of 75%. Going ahead, with more technicals coming on stream, the former share is expected to inch up thereby supporting overall business growth.

Further, with strong FCF generation owing to better control over WC and higher OPM, the upcoming expansion is expected to be funded from internal accruals thereby aiding better return ratios in the years to come.

Key risk & concerns

Adverse decision on banning 27 molecules to affect performance

Loss of customer would impede financial performance