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Insecticides (India) Ltd
Enhancing investment decisions
Initiating coverage
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Explanation of CRISIL Fundamental and Valuation (CFV) matrix
The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –
Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental
grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The
valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to
grade 1 (strong downside from the CMP).
CRISILFundamental Grade
Assessment CRISILValuation Grade
Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)
Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest
that can bias the grading recommendation of the company.
Disclaimer:
This Company-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL
(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for
any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without
any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes
investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold
any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this
Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be
reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or
published or copied in whole or in part, for any purpose.
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July 08, 2011Fair Value Rs 338CMP Rs 335Fundamental Grade 4/5 (Strong fundamentals)
Valuation Grade 5/5 (CMP has strong upside)
Industry Information technology
Polaris Software Limited
Business momentum remains intact
Fundamental Grade 3/5 (Good fundamentals)
Valuation Grade 3/5 (CMP is aligned)
Industry Chemicals
Insecticides (India) LtdBrand power
Insecticides (India) Ltd (IIL) manufactures pesticide formulations for crop
protection. Strategic brand acquisitions, aggressive marketing strategies and
new product launches have led to strong revenue growth. However, IIL’s
product mix is skewed towards generic formulations, which has resulted in
lower profitability. We assign IIL a fundamental grade of 3/5, indicating that
its fundamentals are good relative to other listed securities in India.
Effective branding strategies have aided growth in the past
IIL has been successful in doubling its markets share in the pesticide industry
from 1.2% in FY05 to 2.4% in FY10 amidst intensifying competition. The
company has launched new products on a sustained basis, acquired off-shelf
brands and turned them around through aggressive marketing strategies. It
has also entered into a strategic collaboration with Vanguard USA for the
marketing of Thimet, a popular pesticide brand worldwide. These branding
strategies have aided the growth of the company in the past.
Moderately placed amongst its peers
IIL is moderately placed compared to its peers in the industry. It compares
well in terms of size and geographic reach. However, its margins are relatively
lower compared to peers’ primarily on account of its business model that
involves higher advertising and branding expenses to aggressively market self-
owned and acquired brands. Further, its product mix is skewed towards
generic formulations and technicals, in which the margins are lower than in
specialty molecules.
Expect two-year revenue CAGR of 37%
We expect revenues to register a two-year CAGR of 37% to Rs 8.4 bn in FY13
largely driven by the commencement of commercial production in three new
units. PAT margin is expected to expand to 7.9% in FY13 in line with
improvement in EBITDA margins.
Valuations: Aligned valuations
CRISIL Equities has used the discounted cash flow method to value IIL and
arrived at a fair value of Rs 338 per share. This fair value implies P/E multiples
of 8.5x FY12E and 6.4x FY13E earnings.
KEY FORECAST
(Rs mn) FY09 FY10 FY11 FY12E FY13E
Operating income 2,634 3,775 4,501 6,768 8,441
EBITDA 281 340 438 685 906
Adj net income 208 282 323 501 664
Adj EPS-Rs 16.4 22.3 25.5 39.5 52.4
EPS growth (%) 45.3 35.7 14.4 55.1 32.6
Dividend yield 5.6 3.2 1.3 1.5 2.1
RoCE (%) 26.3 25.7 25.3 28.8 29.6
RoE (%) 23.6 25.7 23.6 29.0 29.6
PE (x) 2.5 3.3 8.6 5.5 4.2
P/Bv (x) 0.5 0.8 1.8 1.4 1.1
EV/EBITDA (x) 1.6 3.0 7.1 5.1 3.7
NM: Not meaningful; CMP: Current Market Price
Source: Company, CRISIL Equities
CFV MATRIX
KEY STOCK STATISTICSNIFTY/SENSEX 5729/19078
NSE/BSE ticker INSECTICID/
INSECTCID
Face value (Rs per share) 10
Shares outstanding (mn) 12.7
Market cap (Rs mn)/(US$ mn) 4,255/96
Enterprise value (Rs mn)/(US$ mn) 4,598/104
52-week range (Rs) (H/L) 355/209
Beta 1.1
Free float (%) 25.3%
Avg daily volumes (30-days) 197924
Avg daily value (30-days) (Rs mn) 66
SHAREHOLDING PATTERN
PERFORMANCE VIS-À-VIS MARKETReturns
1-m 3-m 6-m 12-mINSECTICIDES 6% 8% 54% 39%
NIFTY 3% -3% -3% 9%
ANALYTICAL CONTACTSudhir Nair (Head) snair@crisil.com
Neeta Khilnani nkhilnani@crisil.com
Arun Vasu avasu@crisil.com
Client servicing desk
+91 22 3342 3561 clientservicing@crisil.com
1 2 3 4 5
1
2
3
4
5
Valuation Grade
F u n d a m e n t a l G r a d e
Poor
Fundamentals
Excellent
Fundamentals
S t r o n g
D o w n s i d e
S t r o n g
U p s i d e
74.7% 74.7% 74.7% 74.7% 74.7%
5.1%3.0% 3.9% 6.0%
0.5% 0.2%
25.3%20.2% 21.8% 21.2% 19.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ma r-10 Jun-10 Sep -10 De c-10 Ma r-11
Promoter FII DII Others
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Insecticides (India) Ltd
Table 1: IIL Business environment
Product / Segment Pesticides formulations Technicals
Revenue contribution (FY11) 90.0% 10.0%
Revenue contribution (FY13) 84.0% 16.0%
Product / service offering • Formulations - liquid, granules and
powder
• Home pesticides
Technicals are an input for manufacturing of
formulations
Geographic presence • Manufacturing facility: Chopanki
(Rajasthan) and Samba (Jammu)
• Earns 99.8% of revenues from the
domestic market
Manufacturing facility: Chopanki (Rajasthan)
Market position • Has a market share of 2.4% in the domestic pesticides market as of FY10 (Source:
CMIE)
Sales growth
(FY08-FY11 – 3-yr CAGR)
24.0% 272% (two-year CAGR - started in FY08)
Sales forecast(FY11-FY13 – 2-yr CAGR)
30.0% 57%
Key competitors United Phosphorous, Meghmani Organics,
Excel Crop Care, Rallis India, Bayer Crop
Science, PI Industries and Syngenta India
United Phosphorous, Meghmani Organics, and
Excel Crop Care
Demand drivers • The yield per hectare in India is among the lowest in the world - 2.9 mn tonnes per
hectare as compared to 7.8 mn tonnes in the US, 6.2 mn tonnes in Japan, and world
average of 4.0 mn tonnes per hectare. The government is taking sustained efforts to
improve per hectare yield which in turn will result in an increased usage of pesticides
• Rising population coupled with declining rate in crop production across the world is
expected to put continued thrust on arresting crop losses and, therefore, on increasingusage of pesticides
• Despite a rise in pesticide prices due to increased raw material costs, consistent increase
in MSP (minimum support price) of major crops has kept use of pesticides affordable for
farmers
Industry outlook • The pesticide industry is expected to grow at a CAGR of 12% from 2010 to 2015
Key challenges • Adverse crop conditions due to irregularities in weather will affect the demand for
pesticides
• The increasing use of genetically modified and biotech seeds will reduce the consumption
of pesticides
• Delay in increase of MSP
• Regulatory risks with regards to development in environmental and safety norms
• Lack of diversification in IIL’s revenues, on account of its dependency on the domestic
market
Source: Company, CRISIL Equities
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Insecticides (India) Ltd
Grading Rationale
IIL has grown faster than the industry
Pesticide manufacturer IIL, though relatively small, has been successful in
creating an established position for itself in the industry. It has grown faster
than the industry and consequently managed to increase its market share
amidst intensifying competition. New product launches, aggressive marketing
strategies, strategic brand acquisitions, and strong distribution network of
dealers and traders are the key reasons for IIL’s strong growth in the highly
fragmented pesticides segment. IIL is also one of the few domestic players to
have successfully forayed into the technicals (input for formulations) segment.
Table 2 : IIL’s sales growth has been higher than the industry’s
% Growth
FY07 FY08 FY09 FY10Insecticides India sales growth 41.0% 20.3% 32.9% 34.8%
Industry sales growth 3.8% 12.7% 32.3% 7.5%
Source: CMIE
Table 3: IIL is gaining market share amidst competition
Company Overall market share (%) Rank (FY10)
FY07 FY08 FY09 FY10
United Phosphorus 9.4 9.2 11.8 11.4 1
Syngenta 6.5 6.8 7.2 8.5 2
Bayer Cropscience 7.1 6.5 7.4 7.6 3
Rallis 6.2 6.0 5.7 5.5 4
Gharda Chemicals 6.0 6.0 5.3 5.2 5
Dhanuka Agritech 2.2 2.4 2.4 2.5 15
Insecticides India 1.8 1.9 1.9 2.4 16
Source: CMIE
IIL is placed in the second layer of the industry structure
The Indian pesticide market can be demarcated into three tiers:
a) MNC players form the top layer. They have higher profitability on account of
a large chunk of patented products in their portfolio.
b) The second tier consists of large Indian players with strong distribution
reach. IIL has rapidly expanded to create a position for itself in Tier
II of the pesticides industry.
c) The third tier comprises small regional players with a concentrated product
mix.
IIL has steadily
increased market share
from 1.2% in FY05 to2.4% in FY10
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Insecticides (India) Ltd
Figure 1: Pesticides industry structure
Source: CRISIL Research
The domestic pesticide segment is moderately organised, with the top six
players accounting for 45% market share (March 2010). Players such as Bayer,
UPL and Rallis have a presence in both technicals and formulations. IIL is one of
the few domestic players to be present in both the segments. The technicals
segment forms the basis of formulations, which are manufactured through a
batch-mixing process.
Focus on productivity improvement in agri produceto drive growth of domestic pesticide industry
Rising population, coupled with declining growth in crop production, is expected
to provide a continued thrust on arresting crop losses, and therefore, on
increasing usage of pesticides. Crop losses in India - due to insects, rodents,
diseases and weeds - range from 10-30% annually depending on the severity of
attack, and climatic and environmental conditions. Consumption of pesticides in
India is close to 0.57 kg/ha while in countries like Taiwan it is 17 kg/ ha; in the
US it is 3 kg/ha, in the EU it is 3 kg/ha and in Japan it is 12 kg/ha.
The domestic pesticide industry has shown healthy growth in the past four
years, at 15.4% CAGR over FY07-10. At present, the domestic pesticide
industry is worth ~Rs 84 bn and is expected to grow by at least 12% per annum
till 2015.
-Few MNCs dominate the top tier- they
constitute ~20% of the tota l industry.
-Major players include Bayer Corp
Sciance , Syngenta, Monsanto, BASF, etc.
-They have strong, well-established brands anda diversified product base. Few of them havepresence in the technical segment.
-Large Indian companies with strong distribution
reach, limited R&D capabilit y but good processchemistry skills to develop off-patent products.
-Few of them have presence in the technicalsegment as well.
-Major players include United
Phosphorous, Dhanuka Agritech, Ralli s
India, Bilag Industrie s, PI Industries, GhardaChemicals , Insect icide s India Ltd.
-They form 50-60% of the tot al industry.
-Theyform the remaining proportion of the total industry.
-Small regional players with limited distribution reach.
-They also include spurious product manufacturers.
-Low capita l intensive nature has led to fragmentation in the formulations segment-
there are around 400-500 formulators along with 35 large pl ayers in the i ndustry.
IIL's presence
We expect domestic
pesticide industry to grow
by at least 12% per
annum until 2015
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Insecticides (India) Ltd
Figure 2: Domestic pesticide industry growth
Source: CMIE, CRISIL Equities
Based on application, the crop protection market can be segmented into
insecticides, herbicides and fungicides. In India, a tropical country, the
consumption pattern of pesticides is tilted towards insecticides, which account
for around 70% of the crop protection through chemicals market. It is followed
by herbicides and fungicides at around 15% each. IIL’s own product portfolio is
geared towards sales of insecticides which account for 70% of pesticide sales.
Rise in MSP of major crops increases pesticide industry’s
ability to pass through raw material costs
More than 50% of the raw materials used for manufacturing of pesticides are
derived from various products which have linkages with crude oil and natural
gas. While the cost of raw material for pesticide players has increased over the
years, they have been able to pass on the cost escalation to end consumers
(farmers) due to the government’s policy with regards to MSP for major crops.
Figure 3: Increase in MSP of major crops Figure 4: Crop-wise share of pesticide usage
- indexed to 100
Source: Ministry of Agriculture, CRISIL Equities Source: Industry, CRISIL Equities
52.225 54.883 63.753 73.59 84.352
5.1%
16.2%15.4%
14.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
10
20
30
40
50
60
70
80
90
FY06 FY07 FY08 FY09 FY10
(Rs bn)
Market Size Growth (RHS)
75
100
125
150
175
200
225
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
Cotton Paddy Wheat
Cotton, 37%
Paddy, 20%
Plantations/Pulses, 17%
Wheat/Cereals, 10%
Others, 16%
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Insecticides (India) Ltd
Cotton and paddy account for more than 50% of India’s pesticide consumption.
As a result, pesticide consumption is largely driven by the production trend in
these two crops.
Table 4: Porter’s five forces for Indian pesticide industry
Degree Comments
Buyer power Medium Dependent on the prospects of the agriculture industry and ability of the company to push
its products to farmers. IIL’s pan-India presence helps to mitigate this risk to a certain
extent through diversification of customer base.
Supplier power Medium Low supplier concentration, reduces the bargaining power of suppliers.
Threat of new entrants Low Product registrations, extensive data submission to regulatory authorities, compliance
with strict environment laws and other regulations serve as entry barriers for new players.
Threat of substitutes Low Threat of substitutes is low as product development is an expensive and time-consuming
process, which can only be afforded by large players. A formulator with popular brands is,
therefore, well placed as it can leverage its existing sales network to market products that
are in vogue.
Rivalry High Industry rivalry is high, especially in case of formulators like IIL. The Indian pesticide
industry is fragmented, with the five largest players accounting for only 38% of the
market share.
Diversified product base and effective brandingstrategies have aided growth
Over time, IIL has built its product portfolio to include around 106 products
including insecticides (which constituted ~70% of revenues in FY10), fungicides,
herbicides and household pesticides. The rice crop insecticides constituted
~40% of revenues; cotton, wheat and other vegetable crops account for the
rest. The wide basket of products with various applications not only ensures risk
diversification but also provides a complete one-stop-shop solution to the
farmers. This enables IIL to easily push its products in the small retail farm
outlets, in contrast to an MNC player who will be able to provide the retailer
only few crop-specific usage pesticides.
Branding strategies
• Launching own brands: IIL has been active in launching its own products
and positioning them as quality value-for-money brands. Some of its
leading brands are Victor, Indan 4g, and Kaiser. Victor has registered a
CAGR of 22% over the past four years to report Rs 286 mn sales in FY11.
IIL specifically scouts for opportunities to launch products in markets where
MNC’s product is expected to go off-patent, resulting in a supply gap in that
market. It has set up an R&D centre in Rajasthan to enable continuous
development of new formulations.
IIL has 106 products in
its portfolio: 90 generic
products, 15 specialty
molecules and one
product patent(fungicide), which is in
the application stage
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Insecticides (India) Ltd
Figure 5: New product launches
Source: Company
• Acquiring ‘high recall, but off-shelf’ brands and turning them into
cash cows: IIL has three major brands in its product portfolio, viz. Victor,
Lethal and Thimet, which together along with their variants account for
~35% of revenues. In the initial years of operations, IIL did not receive the
expected response from the farmers for its products and recognised the
need for strong brands. Consequently, it acquired several popular brands,
including Lethal from Montari Industries Ltd in 2003. Montari Industries, a
player in the agro-chemicals space, ceased operations in 2004 and was
reported as a BIFR case. However, its brands had high-recall value amongst
the farmers in spite of being off-shelf for three-four years. Initially, IIL
acquired three brands from Montari Industries on lease and tested the
response to these products. Good response resulted in IIL acquiring all the
brands of Montari Industries for ~Rs 5-6 mn. After acquisition, IIL spent
heavily on advertising to revive the brands and leverage on their high brand
power. Lethal has grown at a CAGR of 20% over the past four years to
report revenues of Rs 390 mn in FY11E and is one of the largest brands in
its segment (Chlorpyrifos) currently. IIL has introduced 11 variants under
this brand, as it is easier to market a new product under an established
brand name. Other successful brands acquired from Montari Industries are
Tractor and Milchlor.
IIL has also acquired a popular generic brand Monocil from Mumbai-based
Nocil Ltd in March 2011. Monocil is a systemic insecticide which controls a
broad spectrum of pests in a wide range of crops and is one of the largest
selling molecules (monocrotophos). This brand too was off-shelf during the
past five-six years as the product did not fit into the broad strategy of
Nocil’s product mix. However, Monocil continued to have a high brand
recall, which is evident from the fact that IIL has booked 1 mn litres of
order (worth Rs 350 mn) in a span of one month. The monocrotophos
segment is estimated to be 10 mn litres annually (Source: Industry),
thereby implying that Monocil has acquired a 10% market share in a short
span of time.
5 5
7
3
8
0
1
2
3
4
5
6
7
8
9
FY07 FY08 FY09 FY10 FY11
New product launches
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Insecticides (India) Ltd
• Entered into technical collaboration with Vanguard USA: In 2006, IIL
entered into a technical and marketing MoU with Vanguard USA, under
which IIL is permitted to manufacture and market products under the brand
Thimet, a popular brand in the generic pesticide segment category
worldwide. Thimet was previously acquired by Vanguard from BASF and
was the top brand in its category (phorate CG) at the time IIL entered into
collaboration with Vanguard. IIL managed to bag the rights to market this
brand on account of its marketing expertise and past experience of turning
around non-performing brands. Thimet, the largest selling brand of IIL, has
grown at a CAGR of 14% in the past four years to clock sales of Rs 416 mn
in FY11. Under this agreement, the company has to pay US$175,000 or 5%
of Thimet’s sales, whichever is lower, as royalty expenses to Vanguard
USA. The agreement was valid till 2011 and has been renewed for another
five years.
Brand performance
Figure 6: Victor - revenues and revenue growth* Figure 7: Lethal - revenues and revenue growth*
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
Figure 8: Thimet - revenues and revenue growth*
Source: CRISIL Equities* Does not include revenues from brand variants
We believe that the company’s ability to launch new products on a sustained
129.5163.6
232.6
221.0
285.8
26.4%
42.2%
-5.0%
29.4%
-10%
0%
10%
20%
30%
40%
50%
0
50
100
150
200
250
300
350
FY07 FY08 FY09 FY10 FY11P
(Rs mn)
Total Revenue y-o-y growth (RHS)
191.9 275.4 333.8 362.7 392.7
43.5%
21.2%
8.6% 8.3%
0%
5%
10%15%
20%
25%
30%
35%
40%
45%
50%
0
50
100
150
200
250
300
350
400
450
FY07 FY08 FY09 FY10 FY11P
(Rs mn)
Total Revenue y-o-y growth (RHS)
250.5 266.4 322.6332.9
416.8
6.3%
21.1%
3.2%
25.2%
0%
5%
10%
15%
20%
25%
30%
0
50
100
150
200
250
300
350
400
450
FY07 FY08 FY09 FY10 FY11P
(Rs mn)
Total Revenue y-o-y growth (RHS)
Victor Lethal and Thimet,
along with its brand
variants, constituted ~35%
of the total revenues in
FY11
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Insecticides (India) Ltd
basis, acquire off-shelf brands and turn them around through aggressive
marketing strategies has been the key for IIL in establishing its position in the
pesticides industry. Further, the company is looking at more collaborations in
the future; it is in the process of finalising a collaboration with a Japanese
player. The company has also recently entered into an agreement with National
Research Development Corporation, Government of India for providing
technological support for research & development of a specific formulation.
We feel that the management’s well thought-out approach in brand acquisitions
and collaborations will continue to drive the future prospects of the company.
IIL is looking to grow slow and steady in the household pesticides segment,
which currently forms an insignificant portion of total revenues (~4% in FY10).
We believe that this is a good strategy since the household pesticide segment
involves huge selling and marketing expenses during the brand-building
exercise.
Pan-India distribution network has also helped
The nature of the Indian crop protection market makes it necessary to be in
close proximity to the end-users - farmers. IIL has a presence across all major
farming states of Uttar Pradesh, Haryana and West Bengal, where the pesticide
consumption is the highest. Prior to the incorporation of IIL, the management
was involved in the trading of pesticides for around three decades. This
experience has enabled IIL to establish a strong dealer network and relationship
with farmers, a pre-requisite for success in the pesticides segment. It has morethan 50,000 distributors and 29 depots across India. It also undertakes
initiatives to encourage and promote new agricultural techniques through crop
seminars, farmer meetings, demonstrations and various educational literatures.
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Insecticides (India) Ltd
Figure 9: Geographically diversified revenues
Source: Company, CRISIL Equities
Capacity expansion to keep growth momentumintact
The company currently has two plants for manufacturing technicals and
formulations in Chopanki (Rajasthan), and one formulations plant in Samba
(Jammu). It is in the process of commencing commercial production in three
new units: two in Dahej, (Gujarat) for formulations and technicals, and one in
Udhampur (Jammu). IIL’s rapid revenue growth can be attributed to consistent
increase in capacities. With three additional units coming up, the growth
momentum is expected to continue over the next two-three years.
Table 5: Continuous build-up of capacity in the past
Plant FY06 FY07 FY08 FY09 FY10
Chopanki unit-formulationsCapacityEC (lakh litres) 30 30 35 40 60
Granules (tonnes) 4,500 6,500 6,500 7,500 7,500
WDP (tonnes) 1,800 2,300 3,200 3,500 4,500
Chopanki unit-technicalsTechnicals (tonnes) 0 0 350 1,100 3,800
Samba unit-formulationsEC (lakh litres) 30 30 40 40 55
Granules (tonnes) 6,000 6,000 6,000 6,100 6,100WDP (tonnes) 1,100 1,800 2,100 2,100 2,100
Table 6: Capacity in the new units
Plant FY12
Dahej unit-formulationsCapacityEC (lakh litres) 40
Granules (tonnes) 12000
WDP (tonnes) 2500
Dahej unit-technicalsTechnicals (tonnes) 9000
Udhampur unit-formulationsEC (lakh litres) 30
Granules (tonnes) 2000
WDP (tonnes) 600
Source: Company
North India, 35%
South India, 40%
East India, 10%
West India, 15% Pan-India presence
eliminates the risk of
uncertain weather
conditions in any one partof the country
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Insecticides (India) Ltd
Table 7: Capex details
PlantStage of
completionTotal investment/source of
funding Strategy
Dahej unit-formulations
• The plant is
completed.
Operations have
commenced from
31st March 2011.
• Total investment of Rs 100 mn.
• IIL had raised Rs 369 mn through
an IPO in 2007. At that time, the
plan was to set up the formulations
and technicals plant in Rajasthan.
However, the location was revised
as the company was unable to
acquire land at reasonable prices in
Rajasthan.
• The funding for this plant has been
met by IPO proceeds.
• It is a multi-purpose plant which can make up to
four molecules simultaneously.
• Dahej is closer to the port. This will enable the
company to save on freight cost as certain
chemicals have to be imported from China and
other countries.
• Further, Rallis India and United Phosphorous, major
technicals manufacturers, have plants in Gujarat.
This will further enable reduction in transportation
costs.
• Monocil will be manufactured in this plant.
Dahej unit-technicals
• Majority of the
work is completed.
• The expected date
of commissioning
is Q2FY12.
• Total investment of Rs 550 mn
financed from internal accruals.
• IIL is expected to use 50% of the total technicals
capacity in-house for its formulations unit. This will
result in savings in raw material costs.
Udhampur-formulations
• The plant is
completed.
Operations have
commenced from
May 2011.
• Total investment of Rs 60 mn
financed from IPO proceeds. The
remaining IPO proceeds have been
utilised in setting up a R&D facility
and a technicals plant at Chopanki
and meeting other corporate
expenses. The IPO proceeds are
now fully utilised.
• The company enjoys certain benefits in its units
situated in J&K as per the J&K Industrial Policy
2004.
• This unit will enjoy 100% excise duty refund and
100% tax exemption for five years. Given these
benefits, IIL plans to manufacture most of the
higher profitable specialty molecules in this plant.
• As the Samba unit has completed five years of
operations, the benefits in this unit have been
reduced to 70% of excise duty redemption. 30% of
PBT will continue to receive the benefit of tax
exemption.
Source: Company, CRISIL Equities
Backward integration enhances business prospects
In 2007, IIL backward integrated to the production of technicals, the major
input for formulations. Foray into the technicals segment involves complex
chemical processes, technological superiority, and higher initial investment
funding. As a result, this segment is not as fragmented as formulations. In this
backdrop, IIL’s successful foray into the technicals segment is reflective of its
strong and experienced R&D team.
Raw material expenses form ~80% of IIL’s total operating expenses. It is
currently utilising 60% of its technical production in-house, which meets ~40%
of its total technicals requirement. The entire production is not used in-house
because of differences in product combinations. The backward integration offers
higher pricing flexibility to the company and enables it to offset the rise in prices
of other chemicals, higher marketing expenses and maintain EBITDA margins,
which otherwise would have been under pressure. The company has plans to
almost double its technicals capacity by setting up a new plant in Dahej, of
which it intends to utilise 50% in-house. This is likely to result in margin
expansion from the current levels, as the company is estimated to save on
distributor’s margin by consuming higher proportion of technicals manufactured
in-house.
IIL is one of the few
players to have successfully
forayed into the technicals
segment
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Insecticides (India) Ltd
Moderately placed amongst its peers
IIL is moderately placed as compared to its peers in the industry. It compares
well in terms of size and geographic reach. However, its margins are relatively
lower compared to peers primarily on account of its business model that
involves higher advertising and branding expenses to aggressively market its
own and acquired brands. For instance, the company had roped in television
actor Aman Verma to promote its brands acquired from Montari Industries in
2003. Further, its product mix is skewed towards generic formulations and
technicals, in which the margins are lower than speciality molecules and
products manufactured through technical collaborations. The company also
follows the strategy of competitively pricing its products to penetrate in a target
market. These measures have resulted in lower operating margins than peers’.
Figure 10: Higher selling expenses as a % of sales...
Source: CRISIL Equities
Figure 11: ... have led to lower EBITDA margins than peers’
Source: CRISIL Equities
0%
2%
4%
6%
8%
10%
12%
14%
16%
D h a
n u
k a
E x c e l
C r o p
G h a
r d a
C h e m
i c a
l s I I L
R a
l l i s
S y n g
e n
t a
I n d i a
U n i t e
d
P h o s p h
o r u s
B
a y e r
FY08 FY09 FY10
0
2
4
6
8
10
12
14
16
18
20
FY08 FY09 FY10
(%)
Dhanuka Agritech Excel Crop IIL
Rallis United Phosphorus Bayer
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Insecticides (India) Ltd
Competitive landscape
Table 8: Comparison with MNC players
Insecticides (India)FY10
Bayer Crop ScienceIndiaFY10
Syngenta IndiaFY10
MonsantoIndustriesFY10
Market share % Overall: 2.4%
Domestic: 5.0%
Exports: Nil
Overall: 7.6%
Domestic: 17.0%
Exports: 3.0%
Overall: 8.5%
Domestic: 10.0%
Exports: 7.0%
Overall: 0.9%
Domestic: 2.0%
Exports: NA
Business:Overview - Strength lies in
aggressively marketing
brands and
subsequently gaining
market share
-Has been active in
product launches and
has a wide distribution
network-Majorly concentrated in
the generic insecticides
segment
- Major focus is in the
domestic market; has
presence in the
technicals space
-Enjoys strong parental
support of Bayer AG
-Has launched new
products and initiatives
at a rapid pace on
account of strong R&D
facilities and well-
established distribution
network-Major focus in the
domestic market, not
present in the technicals
segment
-Incorporated in 2000,
it has fast grown in
the herbicides,
fungicides and
insecticides segments
-Earns around ~55% of
its revenues through
exports; technicals
form 36% of revenues-It also researches and
develops new variety
of hybrid seeds; this
segment accounts for
22% of turnover
-Majorly involved in
developing
biotechnology crops
and hybrid seeds
(form 69% of
turnover)
-Within the pesticides
segment, has major
presence inherbicides
-Focussed on the
domestic market;
does not have
presence in
technicals
International sales % Nil 12% NA 4%
Financial detailsOperating income Rs mn 3,971 17,939 18,092 4,244
EBITDA margin % 9.0 14.0 16.6 17.4
RoCE % 23.2 30.1 29.0 15.8RONW % 22.4 23.2 22.0 15.4
NPM % 7.4 7.3 10.0 12.9
Sales growth (5-year
CAGR)
% 30.1 16.8 24.0 1.2
NP growth (5-year
CAGR)
% 31.8 18.7 24.9 1.5
GFA turnover Times 10.4 3.4 3.4 2.1
Debt service ratiosDebt equity ratio Times 0.17 0.21 0.02 0.03
Interest cover Times 14.1 8.8 26.5 6.0
Working capitalratios
Current ratio Times 0.9 1.0 0.7 1.3
Debtors Days 58 40 55 39
Finished goods Days 61 45 62 44
Raw material days Days 71 111 110 72
Creditors Days 101 91 142 235
Source: Prowess, CRISIL Equities
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Insecticides (India) Ltd
Table 9: Comparison with Indian players
Insecticides(India) United Phosphorous Rallis India Dhanuka Agritech
FY10 FY10 FY10 FY10
Market share % Overall: 2.4%Domestic: 5.0%
Exports: Nil
Overall: 11.4%Domestic: 6.0%
Exports: 49%
Overall: 5.5%Domestic: 9.0%
Exports: 4.0%
Overall: 2.5%Domestic: 6.0%
Exports: Nil
Business:Overview - Strength lies in
aggressively
marketing brands
and subsequently
gaining market
share
- Has been active in
product launches
and has a wide-
spread distribution
network
- Majorly
concentrated in
the generic
insecticides
segment
- Major focus is in
the domestic
market; has
presence in the
technicals space
- Largest player in the
domestic market
- Has inorganically
grown through
various overseas
acquisitions of
brands/companies
- Manufactures and
exports off-patent
agrochemicals, a
segment in which it is
amongst the largest
players globally
- Product portfolio
ranges from
pesticides to specialty
chemicals to seeds
- Has manufacturing
locations across 9
locations in India and
16 outside India
- Has a diversified
revenue base
across insecticides,
herbicides and
fungicides
- Rallis, a subsidiary
of Tata Chemicals
Ltd, has announced
that it will be
acquiring Metahelix
Life Sciences, a
seeds company
- With factories
spread across five
locations, it has a
well entrenched
distribution network
- Has presence in the
technicals segment,
earns 79% of
revenues from the
domestic market
- Has various
international
collaborations
which ensure
higher
profitability
- Innovative
marketing
campaigns, also
sells through self-
owned retail
outlets
- Tried to backward
integrate in the
technicals
segment, but
backed out
- Present in the
domestic market
International sales % Nil 75% 30% Nil
Financial detailsOperating income Rs mn 3,971 27,984 9,429 4,462
OPM % 9.0 12.5 18.0 14.3
RoCE % 23.2 8.1 31.7 35.6
RONW % 22.4 10.8 24.8 37.4
NPM % 7.4 6.6 11.3 8.9
Sales growth (5-
year CAGR)
% 30.1 19.8 8.6 48.6
NP growth (5-year
CAGR)
% 31.8 20.8 9.2 49.3
GFA turnover Times 10.4 1.5 2.1 6.8
Debt service ratiosDebt equity ratio Times 0.17 1.2 0.02 0.59
Interest cover Times 14.1 4.0 26.9 8.7
Working capitalratiosCurrent ratio Times 0.9 4.4 0.8 1.0
Debtors Days 58 98 29 78
Finished goods Days 61 19 43 52
Raw material days Days 71 31 40 74
Creditors Days 101 113 148 54
Source: Prowess, CRISIL Equities
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Insecticides (India) Ltd
Key risks
Unpredictable weather and incidence of pests
The performance of the pesticide industry remains highly dependent on the
weather, which can affect the presence of disease and pest infestations in the
short term on a regional basis. Accordingly, it may negatively affect the demand
for crop protection products. Also, sales of IIL in the domestic retail market are
highly seasonal due to monsoons, with a majority of sales in the second quarter
of the financial year. Floods, droughts and other extreme seasonal and cyclical
factors create uncertainty of demand.
Threat from biotech seeds and immunity of pests
The use of genetically modified seeds is on the rise. These seeds are inherently
resistant to pests, which makes the use of pesticides redundant. Despite
resistance to widespread use of these seeds and various controversies
surrounding their impact on the environment, they remain a threat to pesticide
consumption. However, the management has indicated that biotech seeds do
require a certain amount of pesticides. Further, the tendency of various pests to
develop immunity to various pesticides for short periods of time may impact the
demand for pesticides during specific time intervals.
Lengthy and expensive registration process
The registration process of a new product is very lengthy involving testing of
products across soil types, climatic conditions, water conditions and variety of
pests, which typically requires between three and seven years. Also, the cost of
registration is high at Rs 25-30 mn per product. This, along with the presence of
well-established players with strong brand names, creates a challenge for IIL in
the registration of new products.
Regulatory risk
IIL enjoys certain fiscal benefits, viz. tax exemptions and excise duty refund for
its plants in Jammu under the J&K Industrial Act of 2004. In the event of a
change in regulation and withdrawal of these benefits by the government, the
company’s profitability and the competitive advantage may be adversely
affected.
Unpredictable weather,
threat from biotech seeds,
and lengthy registration
process are the key
challenges for the company
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Insecticides (India) Ltd
Financial Outlook
Revenues to grow at two-year CAGR of 37%
Revenues are expected to increase at a two-year CAGR of 37% to Rs 8.4 bn by
FY13. Growth is expected to be driven by the commencement of commercial
operations in the three new units, two formulations plants in Dahej and
Udhampur, and one technical plant in Dahej and the recent acquisition of the
hugely popular brand ‘Monocil’. The company plans to consistently add
capacities in these new units, thereby boosting revenues on a sustained basis.
Figure 12: Healthy revenue growth going forward Figure 13: Product-wise revenue diversification
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
EBITDA margins to expand to 10.7% in FY13We expect EBITDA margins to expand from 9.7% in FY11 to 10.7% in FY13 on
account of higher consumption of technicals manufactured in-house, and a
relatively low ad spend given the popularity of the newly acquired brand
Monocil. The technical capacity is expected to increase from 3,800 tonnes in
FY10 to 12,800 tonnes in FY13, of which 50% is expected to be used in-house.
Figure 14: EBITDA and EBITDA margin trend
Source: Company, CRISIL Equities
1,976 2,634 3,775 4,501 6,768 8,441
17%
33%
43%
19%
50%
25%
0%
10%
20%
30%
40%
50%
60%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY08 FY09 FY10 FY11 FY12E FY13E
(Rs mn)
Revenues y-o-y revenue growth (RHS)
46.9% 44.1%49.6% 51.6% 49.9%
22.9% 28.3% 22.9% 19.9% 19.4%
4.5%9.5% 11.4% 15.2% 16.0%
25.7%18.0% 16.1% 13.4% 14.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY09 FY10 FY11 FY12E FY13E
Liquid formulations Granules Technicals Powder
281340
438
685
906
10.7%
9.0%
9.7%
10.1%
10.7%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
0
100
200
300
400
500
600
700
800
900
1,000
FY09 FY10 FY11 FY12E FY13E
(Rs mn)
EBITDA EBITDA margin (RHS)
Revenues likely to grow at
a two-year CAGR of 37%
to Rs 8.4 bn in FY13
EBITDA margins are likely to
expand on account of higher
consumption of indigenously
manufactured technicals,
and relatively lower ad
spend
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Insecticides (India) Ltd
PAT to grow at a two-year CAGR of 44%, EPS toincrease from Rs 25.5 in FY11 to Rs 52.4 in FY13
Adjusted PAT is expected to grow at a two-year CAGR of 44% to Rs 664 mn in
FY13. Adjusted PAT margin is expected to expand in line with improvement in
EBITDA margins. The company continues to enjoy tax exemption on 30% of the
PBT of the Samba unit (~30% revenue contribution) and 100% of PBT in the
Udhampur unit (~20% revenue contribution), which will also help the margin
expansion.
Figure 15: PAT and PAT margin
Source: Company, CRISIL Equities
Figure 16: RoCE and RoE trend
Source: Company, CRISIL Equities
143 208 282 323 501 664
7.2%
7.9%
7.5%
7.2%
7.4%
7.9%
6.8%
7.0%
7.2%
7.4%
7.6%
7.8%
8.0%
0
100
200
300
400
500
600
700
FY08 FY09 FY10 FY11 FY12E FY13E
(Rs mn)
PAT PAT margin (RHS)
24.5
26.325.7
25.3
28.8
29.6
25.3
23.6
25.7
23.6
29.0
29.6
20
22
24
26
28
30
32
FY08 FY09 FY10 FY11 FY12E FY13E
(%)
RoCE RoE
PAT margin is expected to
expand to 7.9% in FY13
RoE and RoCE to expand
on account of higher
profitability
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Insecticides (India) Ltd
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of
management quality, apart from other key factors such as industry and
business prospects, and financial performance.
Experienced management
IIL has an experienced management headed by Mr H. C. Aggarwal, chairman,
and his son Mr Rajesh Aggarwal, managing director. Mr Rajesh Aggarwal
promoted the company in 1996. His business acumen in the production and
marketing of pesticides is reflected in the strong revenue growth of 30% in the
past five years.
Mr H. C. Aggarwal has more than three decades of experience in the pesticides
segment and has been associated with IIL since 2001. He has been the
president of Northern India Pesticides Manufacturing Association for over five
terms and the director of Crop Care Federation of India (CCFI). He is currently
on the board of CCFI. He oversees the broad strategic growth plans of the
company, while Mr Rajesh Aggarwal is responsible for smooth functioning of
day-to-day operations.
Proven ability to turn around brands
IIL has been quick in identifying and acquiring brands with high recall amongst
farmers but which have been off-shelf for a few years. It has then successfully
leveraged on the products’ brand strength through aggressive marketing
strategies and various awareness campaigns on the use of pesticides amongst
farmers. Though this strategy has resulted in higher advertising expenses and,
consequently, lower profitability compared to peers, it has enabled the company
to increase its market share in the fragmented formulations segment. The
management is conscious of this fact and is taking steps to improve profitability
by scouting for technical collaborations. We believe that the management has
displayed a good mix of aggression with caution in their business strategy,
which augurs well for the sustained growth of the company in the long term.
Professional set-up and strong second line
IIL’s management has adopted a professional approach towards managing the
company. The company has inducted various professionals from the industry at
the senior and mid management levels to prepare for the next level of growth.
Though the company does not have employees with specific designations such
as CFO, COO, etc., there is a specialised head for each of the operational
departments. Most of the second line has been associated with the company for
nearly ten years.
IIL has an experienced
management, quick in
identifying new brand
acquisition opportunities
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Insecticides (India) Ltd
Corporate Governance
CRISIL’s fundamental grading methodology includes a broad assessment of
corporate governance and management quality, apart from other key factors
such as industry and business prospects, and financial performance. In this
context, CRISIL Equities analyses the shareholding structure, board
composition, typical board processes, disclosure standards and related-party
transactions. Any qualifications by regulators or auditors also serve as useful
inputs while assessing a company’s corporate governance.
Overall, IIL’s corporate governance conforms to regulatory requirements
supported by reasonably good board practices and an independent board.
Board composition
IIL’s board consists of eight members, of whom five are independent directors,
which is in line with the requirements under Clause 49 of SEBI’s listing
guidelines. Given the background of the directors, we believe the board is well
experienced. The attendance of independent directors at the board meeting is
high. They have a fairly good understanding of the company’s business and its
processes.
Board’s processes
The company’s quality of disclosure can be considered good judged by the level
of information and details furnished in the annual report, websites and other
publicly available data. All the major decisions, including decision regarding the
acquisition of brands are discussed in detail at the board meetings. The
independent directors receive the agenda papers around 10-15 days in advance.
The company has all the necessary committees – audit, remuneration, and
investor grievance - in place to support corporate governance practices. The
audit committee is chaired by an independent director, Mr. Navneet Goel, who
has been associated with the company for the past three to four years.
Corporate governance
practices at IIL conform
to regulatory requirement
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Insecticides (India) Ltd
Valuation Grade: 3/5
We have used the discounted cash flow (DCF) method to value IIL and arrived
at a fair value of Rs 338 per share. The stock is currently trading at Rs 335 per
share. Consequently, we initiate coverage on IIL with a valuation grade of 3/5,
indicating that the current market price is aligned.
Key DCF assumptions
• We have considered the discounted value of the firm’s estimated free cash
flow from FY13 to FY21.
• We have included capital expenditure of Rs 270 mn over FY12 and FY13,
and a maintenance capex of Rs 50 mn per annum thereafter.
• We have assumed a terminal growth rate of 4% beyond the explicit
forecast period.
WACC computation
FY13-21 Terminal value
Cost of equity 16.8% 16.8%
Cost of debt (post tax) 7.4% 7.4%
WACC 15.4% 15.4%Terminal growth rate 4.00%
Sensitivity analysis to terminal WACC and terminal growth rate
Terminal growth rate
T e r m i n a l W A C C 338 2.0% 3.0% 4.0% 5.0% 6.0%
13.4% 359 377 399 426 461
14.4% 334 348 365 385 410
15.4% 313 325 338 353 372
16.4% 296 305 316 328 343
17.4% 282 290 298 308 319
Source: CRISIL Equities
Key upside to our fair value estimates• Materialisation of the new technical collaboration with a Japanese player
• Acquisition of more brands
• New expansion plans
We assign a fair value of
Rs 338 per share to IIL
The fair value implies P/E
multiples 8.5x FY12 EPS
and 6.4x FY13 EPS,
higher than the historical
median of 3.4x. As
significant growth isexpected from FY10 due
to the capacity
expansion, we believe
that a higher multiple is
justified
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Insecticides (India) Ltd
One-year forward P/E band One-year forward EV/EBITDA band
Source: NSE/BSE, Company, CRISIL Equities Source: NSE/BSE, Company, CRISIL Equities
P/E – premium / discount to NIFTY P/E movement
Source: NSE/BSE, Company, CRISIL Equities Source: NSE/BSE, Company, CRISIL Equities
Table 10: Peer valuations
Companies
M.cap Price/Earnings (x) Price/Book (x) EV/EBITDA RoE (%)
(Rs mn) FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E
Insecticides India 4,287 8.6 5.5 4.2 1.8 1.4 1.1 7.1 5.1 3.7 23.6 29.0 29.6
Dhanuka Agritech 4,652 9.1 7.1 6.1 2.7 1.9 1.5 7.3 5.4 4.4 38.1 30.4 27.9
United Phosphorus 72,531 13.0 9.6 8.4 1.9 1.8 1.5 7.1 6.1 5.5 17.9 19.7 19.0
Bayer Cropscience 35,186 22.3 19.5 - 5.1 4.2 - 14.1 12.0 - 25.3 23.5 -
Rallis India 30,480 24.2 18.1 14.2 5.8 4.7 3.7 16.7 12.1 9.7 28.3 28.7 29.6
PI Industries 9,958 15.3 11.4 8.1 4.7 2.7 2.0 7.9 6.1 4.6 35.4 32.6 31.4
Source: CRISIL Equities, industry sources
0
50
100
150
200
250
300350
400
450
500
J a n -
0 8
M a r -
0 8
M a y -
0 8
J u
l - 0 8
S e p -
0 8
N o v -
0 8
J a n -
0 9
M a r -
0 9
M a y -
0 9
J u
l - 0 9
S e p -
0 9
N o v -
0 9
J a n -
1 0
M a r -
1 0
M a y -
1 0
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l - 1 0
S e p -
1 0
N o v -
1 0
J a n -
1 1
M a r -
1 1
M a y -
1 1
J u
l - 1 1
(Rs)
Insecticides India Ltd 2x 4x 6x 8x 10x
0
1,000
2,000
3,000
4,000
5,000
6,000
J a n - 0 8
M a r - 0 8
M a y - 0 8
J u l - 0 8
S e p - 0 8
N o v - 0 8
J a n - 0 9
M a r - 0 9
M a y - 0 9
J u l - 0 9
S e p - 0 9
N o v - 0 9
J a n - 1 0
M a r - 1 0
M a y - 1 0
J u l - 1 0
S e p - 1 0
N o v - 1 0
J a n - 1 1
M a r - 1 1
M a y - 1 1
J u l - 1 1
(Rs mn)
EV 3x 4x 5x 6x
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
J a n -
0 8
M a r -
0 8
M a y -
0 8
J u
l - 0 8
S e p -
0 8
N o v -
0 8
J a n -
0 9
M a r -
0 9
M a y -
0 9
J u
l - 0 9
S e p -
0 9
N o v -
0 9
J a n -
1 0
M a r -
1 0
M a y -
1 0
J u
l - 1 0
S e p -
1 0
N o v -
1 0
J a n -
1 1
M a r -
1 1
Premium/Discount to NIFTY Median premium/discount to NIFTY
0
2
4
6
8
10
12
J a n - 0
8
M a r - 0 8
M a y - 0 8
J u l - 0 8
S e p - 0 8
N o v - 0
8
J a n - 0
9
M a r - 0 9
M a y - 0 9
J u l - 0 9
S e p - 0 9
N o v - 0
9
J a n - 1
0
M a r - 1 0
M a y - 1 0
J u l - 1 0
S e p - 1 0
N o v - 1
0
J a n - 1
1
M a r - 1 1
M a y - 1 1
J u l - 1 1
1yr Fwd PE (x) Median PE
+1 std dev
-1 std dev
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Insecticides (India) Ltd
Company Overview
IIL manufactures insecticide formulations for crop protection. It has also
ventured into the home pesticides segment, which currently accounts for only
~4% of total revenues. It has two formulation manufacturing units, one each in
Chopanki, (Rajasthan) and Samba, (Jammu). It backward integrated into the
technical segment in 2007. The technicals manufacturing unit is located in
Chopanki, Rajasthan. The popular brands from IIL’s product portfolio are Lethal,
Thimet and Victor. These brands, along with its variants, account for ~35% of
total revenues. It has recently acquired the brand Monocil from Nocil Ltd., which
is expected to generate healthy revenues post FY11.
The company was incorporated by Mr. Rajesh Aggarwal in 1996. Commercial
operations commenced in 2002 after the setting up of the Chopanki unit. In
2007, the company came out with an IPO to fund its expansion plans and raised
Rs 369.2 mn (3.21 mn shares at an issue price of Rs 115 per share). The
expansion was earlier planned in Rajasthan, but since the company could not
acquire land at competitive rates in Rajasthan, the location of the technical
plant was shifted to Dahej (Gujarat). This shift coupled with the recession in
2009 and the time involved in getting the clearances resulted in a delay in
utilising the IPO proceeds. The IPO proceeds are now fully utilised with the
proposed commissioning of new units in Gujarat and Jammu.
Table 11: Business snapshot
Business segments Contribution to revenues (%) FY08 FY09 FY10 FY11
Formulations-liquid 59.0 46.9 44.1 47
Formulations-granules 22.2 22.9 28.3 19
Formulations-powder 18.3 25.7 18.0 18
Technicals 0.5 4.5 9.5 10
Business segmentsCapacity utilisation (%)
FY08 FY09 FY10 FY11
Formulations-liquid 81 69 68 89
Formulations-granules 70 94 106 113
Formulations-powder 90 89 67 94
Technicals 68 97 58 55
Product category No. Of products
Generics 90
Specialty molecules 15
Patent (under application stage) 1
Total 106
Source: Company
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Insecticides (India) Ltd
Table 12: Key milestones
1996 Incorporated as private limited company
2001 Converted into public limited company
2002 Commissioned formulation plant at Chopanki (Rajasthan)
2003 Acquired all the brands of Montari Industries Ltd
2004 Commissioned second formulation plant at Samba (Jammu)
2005 Set up R&D Laboratory at Chopanki and was granted ISO 9001-2000
certification
2006 Acquired the exclusive right to sell the Thimet brand in India from
American Vanguard Corporation, USA
2007 Came out with an IPO to raise Rs 369.2 mn
R&D facility and technical plant commenced in Chopanki
Expansion of formulations completed at Samba unit
2011 Acquired Monocil brand from Nocil Ltd.
Two new formulation plants- Dahej and Udhampur commence operations
Entered into an agreement with National Research Development
Corporation, Government of India for providing technological support for
research & development of a specific formulation
Source: Company
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Insecticides (India) Ltd
Annexure: Financials
Source: CRISIL Equities
Income statement Balance Sheet
(Rs mn) FY09 FY10 FY11 FY12E FY13E (Rs mn) FY09 FY10 FY11 FY12E FY13E
Operating income 2,634 3,775 4,501 6,768 8,441 Liabilities
EBITDA 281 340 438 685 906 Equity share capital 127 127 127 127 127
EBITDA margin 10.7% 9.0% 9.7% 10.1% 10.7% Reserves 844 1,099 1,386 1,819 2,416 Depreciation 11 12 15 15 24 Minorities - - - - -
EBIT 270 328 423 669 882 Net worth 971 1,226 1,513 1,945 2,543
Interest 42 9 10 47 58 Convertible debt - - - - -
Operating PBT 228 320 413 622 823 Other debt 138 219 380 805 655
Other income 14 9 (0) 2 3 Total debt 138 219 380 805 655
Exceptional inc/(exp) (0) (0) (1) (20) - Deferred tax liability (net) 14 17 20 20 20
PBT 241 328 412 604 826 Total liabilities 1,123 1,462 1,913 2,771 3,219
Tax provision 33 46 90 123 162 Assets
Minority interest - - - - - Net fixed assets 244 253 313 497 543
PAT (Reported) 208 282 322 481 664 Capital WIP 8 71 592 592 592
Less: Exceptionals (0) (0) (1) (20) - Total fixed assets 251 324 905 1,089 1,135
Adjusted PAT 208 282 323 501 664 Investments 1 - - - -
Current assets
Ratios Inventory 963 1,181 1,258 1,990 2,506
FY09 FY10 FY11 FY12E FY13E Sundry debtors 332 634 806 1,168 1,434
Growth Loans and advances 150 265 263 395 493
Operating income (%) 33.3 43.3 19.2 50.4 24.7 Cash & bank balance 33 87 37 53 59
EBITDA (%) 54.5 21.1 28.7 56.3 32.3 Marketable securities 171 50 1 1 1
Adj PAT (%) 45.3 35.7 14.4 55.1 32.6 Total current assets 1,648 2,216 2,364 3,606 4,492
Adj EPS (%) 45.3 35.7 14.4 55.1 32.6 Total current liabilities 779 1,081 1,357 1,926 2,409
Net current assets 869 1,136 1,007 1,680 2,083
Profitability Intangibles/Misc. expenditure 2 2 2 2 2
EBITDA margin (%) 10.7 9.0 9.7 10.1 10.7 Total assets 1,123 1,462 1,913 2,771 3,219
Adj PAT Margin (%) 7.9 7.5 7.2 7.4 7.9
RoE (%) 23.6 25.7 23.6 29.0 29.6 Cash flow
RoCE (%) 26.3 25.7 25.3 28.8 29.6 (Rs mn) FY09 FY10 FY11 FY12E FY13E
RoIC (%) 26.7 24.6 20.7 24.2 24.9 Pre-tax profit 241 328 413 624 826
Total tax paid (30) (43) (86) (123) (162)
Valuations Depreciation 11 12 15 15 24
Price-earnings (x) 2.5 3.3 8.6 5.5 4.2 Working capital changes (140) (333) 29 (658) (396)
Price-book (x) 0.5 0.8 1.8 1.4 1.1 Net cash from operations 83 (36) 371 (141) 293 EV/EBITDA (x) 1.6 3.0 7.1 5.1 3.7 Cash from investments
EV/Sales (x) 0.2 0.3 0.7 0.5 0.4 Capital expenditure (63) (85) (596) (200) (70)
Div idend payout ratio (%) 14.3 10.5 11.4 8.5 8.5 Investments and others 11 122 49 - -
Dividend yield (%) 5.6 3.2 1.3 1.5 2.1 Net cash from investments (52) 37 (546) (200) (70)
Cash from financing
B/S ratios Equity raised/(repaid) 0 (1) (0) - -
Inventory days 184 150 139 142 144 Debt raised/(repaid) (12) 81 161 425 (150)
Creditors days 116 112 119 112 113 Dividend (incl. tax) (30) (30) (37) (41) (57)
Debtor days 42 61 62 63 62 Others (incl extraordinaries) 0 3 1 (27) (10)
Working capital days 83 80 80 70 79 Net cash from financing (42) 54 125 357 (216)
Gross asse t turnover (x) 10.8 13.5 13.8 14.6 14.1 Change in cash position (10) 54 (50) 16 6
Net asset turnover (x) 12.0 15.2 15.9 16.7 16.2 Closing cash 33 87 37 53 59
Sales/operating assets (x) 11.7 13.1 7.3 6.8 7.6
Current ratio (x) 2.1 2.1 1.7 1.9 1.9 Quarterly financials
Debt-equity (x) 0.1 0.2 0.3 0.4 0.3 (Rs mn) Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11
Net debt/equity (x) (0.1) 0.1 0.2 0.4 0.2 Net Sales 697 1,032 1,854 1,058 835
Interest coverage 6.4 38.6 42.8 14.1 15.1 Change (q-o-q) -15% 48% 80% -43% -21%
EBITDA 67 97 185 104 65
Per share Change (q-o-q) -12% 45% 92% -44% -38%
FY09 FY10 FY11 FY12E FY13E EBITDA margin 9.5% 9.4% 10.0% 9.8% 7.8%
Adj EPS (Rs) 16.4 22.3 25.5 39.5 52.4 PAT 64 62 129 69 61
CEPS 17.3 23.2 26.7 40.7 54.3 Adj PAT 64 62 129 69 61
Book value 76.6 96.7 119.3 153.4 200.5 Change (q-o-q) 15% -3% 107% -46% -12%
Dividend (Rs) 2.3 2.3 2.9 3.2 4.5 Adj PAT margin 9.2% 6.0% 7.0% 6.6% 7.4%
Actual o/s shares (mn) 12.7 12.7 12.7 12.7 12.7 Adj EPS 5.0 4.8 10.0 5.4 4.8
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Insecticides (India) Ltd
Focus Charts
IIL’s stock has outperformed Nifty Industry market share as of FY10
- indexed to 100Source: NSE Source: CMIE
Revenue and revenue growth trend EBITDA and EBITDA margin trend
Source: Company, CRISIL Equities Source: Company, CRISIL Equities
PAT and PAT margin trend Shareholding pattern over the quarters
Source: Company, CRISIL Equities Source: BSE
0
50
100
150
200
250
300
350
400
J a n - 0 8
M a r - 0 8
M a y - 0 8
J u l - 0 8
S e p - 0 8
N o v - 0 8
J a n - 0 9
M a r - 0 9
M a y - 0 9
J u l - 0 9
S e p - 0 9
N o v - 0 9
J a n - 1 0
M a r - 1 0
M a y - 1 0
J u l - 1 0
S e p - 1 0
N o v - 1 0
J a n - 1 1
M a r - 1 1
M a y - 1 1
J u l - 1 1
Insecticeides NIFTY
UnitedPhosphorus, 1
1%Gharda, 5%
SyngentaIndia, 9%
BayerCropscience,
8%
Rallis
India, 5%
Bilag
IndustriesPvt., 5%Dhanuka, 3%
Others, 52%
Insecticides,
2%
1,976 2,634 3,775 4,501 6,768 8,441
17%
33%
43%
19%
50%
25%
0%
10%
20%
30%
40%
50%
60%
0
1,000
2,0003,000
4,000
5,000
6,000
7,000
8,000
9,000
FY08 FY09 FY10 FY11 FY12E FY13E
(Rs mn)
Revenues y-o-y revenue growth (RHS)
281340
438
685
906
10.7%
9.0%
9.7%
10.1%
10.7%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
0
100
200300
400
500
600
700
800
900
1,000
FY09 FY10 FY11 FY12E FY13E
(Rs mn)
EBITDA EBITDA margin (RHS)
143 208 282 323 501 664
7.2%
7.9%
7.5%
7.2%
7.4%
7.9%
6.8%
7.0%
7.2%
7.4%
7.6%
7.8%
8.0%
0
100
200
300
400
500
600
700
FY08 FY09 FY10 FY11 FY12E FY13E
(Rs mn)
PAT PAT margin (RHS)
74.7% 74.7% 74.7% 74.7% 74.7%
5.1%3.0% 3.9% 6.0%0.5% 0.2%
25.3%20.2% 21.8% 21.2% 19.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mar-10 Jun-10 Sep-10 Dec-10 Mar-11
Promoter FII DII Others
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