2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

26,900 8,289

NAGARJUNA AGRICHEM LTD

BSE CODE NSE CODE

Stock Information

ISIN INE295D01020

Equity Shares (Cr) 15.5911508

52-Week Range (INR) 34.90/15.00

Security Var 25.98

VAR Margin 25.98

Extreme Loss Rate 5.04

M.Cap. Full (Cr) 521.52

M.Cap. F F(Cr) 130.38

Financials Snapshot (INR )

Parameters 2015-16 2014-15

EBIDTA 10.49% 9.08%

(as a % of net sales)

EBIT 5.28% 4.56%

( as a % of net sales)

ROCE 12.66% 10.92%

Return On net worth 5.24% 4.69%

EPS (FV Re 1/-) 0.62 0.54

Book value per share 11.91 11.40

Avg P/E ratio 32.8 27.1

Shareholding pattern (%)

As On Sep-16 Jun-16 Sep-15

Promoter 74.8% 74.8% 74.8%

DII 0.00 0.00 0.00

FII 0.00 0.00 0.00

Free Float 25.2 25.2 25.2

Shareholders 9382

Shareholding Pattern of the top 10 Sh.

Name %of total Share of the company 1. Mitesh N Mehta 1.44% 2. NACL Unclaimed Suspense 1.12% 3. Savera Cityscapes Pvt Ltd 0.80% 4. Pinky Venture Pvt Ltd. 0.63% 5. Hitesh Satishchandra Doshi 0.56% 6. Narendra Kumar Mehta 0.56% 7. Rakesh Basin 0.35% 8. Pankaj Razdan 0.35% 9. Tapan Kumar Dey 0.23% 10. Jayaesh N Parekh 0.29%

Sourses – Company Annual Report and BSE Site.

COMPANY DIRECTOR’S REPORT AND MDA OVERVIEW

Nagarjuna Agrichem, a Nagarjuna Group company was established

in 1994 with an investment of $7 million for producing Monocrotophos Technical. NACL has since grown Substantially and now manufacturing a comprehensive range of pesticide technicals, formulations and custom manufacturing fine chemicals. All the manufactured products conform to international quality standard and specification.

It has adequate capacities, state of the art infrastructure, skilled experienced manpower and technical absorption capabilities. In fact, custom synthesis and manufacturing are one of NACL inherent capabilities. The production lines are designed for a quick change over. It also has a custom synthesis and toll manufacturing Division, which caters to the requirement of reputed overseas customers.

NACL Formulation in a modern formulation plant situated in the East Godavari District of Andhra Pradesh. This location is situated in the scenic rice growing area on India’s east coast. This unit is one of the few to have in a single location, integrated multi-line facilities capable of producing a variety of pesticide formulation such as liquids, wettable powders and granules simultaneously. This unit has the formulation technology to produce dry flowables and water based emulsion.

NACL has an impressive range of branded formulation in the categories of insecticides, Fungicides and herbicides. In addition to catering to the entire Indian subcontinent, it export both technicals and formulation-grade pesticides to some contries in Europe, Asia including the Middle East, Japan, USA, Africa.

R & D Plays a critical role in Nagarjuna activities in agribusiness. In recognition of this, Nagarjuna established Nagarjuna Agricultural Research and Development Institute in 1995 to focus research on crop protection, crop production and crop improvement. NARDI was established on a 100 acre dedicated farm and staffed by nationally renowned scientist and other support staff. NARDI did have research collaboration with leading international institute such as IRRI, ICRISAT, CIMMYT, ACRDC and ICAR. The Quality management facilities are equipped with modern analytical equipment such as GC-Mass, GLC, HPLC, UV Spectrophotometer and etc.

2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

Achievements: Nagarjuna Agrichem product profile include those tested and certified by best GLP Certified Independent Laboratories in Europe & USA. All the products conform to national and international specifications. Risk, Threats and Concerns: Dependency on monsoons and vagaries of climate continues to bo a Major risk factor for agriculture and hence to crop protection. Industry Overview: India is currently the fourth-largest producer of agrochemicals, after United States, Japan and China, with a size of above Rs 26,000 crore i.e USD 3.89 billion with almost 50% of the production being exported. The export largely driven by contract manufacturing and R & D For international Companies due skilled workforce. India has one of the lowest per-hectare usage of agrochemicals I the world. Mainly on account of low purchasing power, lack of awareness amongst the Indian farmers and their limited reach to the markets. The Government continues to give emphasis to Agriculture and has provided higher allocation in the Budget. The Thrust areas identified as a growth driver are irrigation, soil health, pulses and crop insurance. The Agrochemical sector, which ha been growing at a CAGR of 8%, suffered severe reversals in recent years due to back to back droughts in the last two years. It is estimated that the domestic industry has registered a negative growth in 2015-16 compared to the previous year, with most southern states and Maharashtra severely affected. Area under Paddy has come down, whereas Cotton acreages reduced by 10% due to drought like situation in Maharashtra, Gujarat, accentuated by heavy attack of sucking pests like white flies in

North India. This has led to a challenging business scenario with the industry carrying higher levels of inventories compared to the previous year. Further the usage of Bio-pesticides by the Indian Farmer is starting to gain importance. This Space India has 190 Mn hectares of gross cultivated area and the scope for bringing new areas under cultivation is severely limited. Available arable land per capita has been reducing and is expected to reduce further. The pressure is therefore to increase yield per hectare of agrochemicals. Growing Horticulture and Agriculture Industry will result in increasing demand for agrochemicals, especially fungicides. Per capita consumption of agro-chemical in India being substantially lower the western countries and with increasing awareness, the trend of usage of Agrochemicals appears to be correcting. The agriculture sector in India is expected to generate better momentum due to increased investment in agriculture infrastructure such as irrigation facilities, warehousing and cold storage, factors such as reduced transaction costs and time, improved port gate management and better fiscal incentives would contribute to the sectors growth.

2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

DIVIDEND: Board of Directors Recommend a dividend of 0.10 paisa per equity shares of Re. 1/- each (i.e 10% of the paid up Capital) for the financial year ended 31st March, 2016. The total outflow towards dividend on equity shares for the year would be Rs 187.65 lakhs . PERFORMANCE: Company Recorded revenue of Rs 710.27 Crores during the under review as against Rs 771.47 Crores achieved in the previous year, showing a decline of 7.93%. The EBIT and Cash profit stood at Rs 47.74 crores and Rs 37.47 Crore respectively during the year under review, compared Rs 45.34 crore and Rs 35.06 crore respectively in the previous year. CREDIT RATING: Long term Bank Facilities: Revised From CARE BBB to CARE BBB+ . Short term Bank Facilities: Revised From CARE A3 to CARE A3+ . NEW PROJECTS / PRODUCTS: The company R&D Centre at Shadnagar, near Hyderabad has been equipped with the state of art facilities, equipments and instrument. It has been strengthened in developing various cost effective processes for manufacturing of active ingredients / Technical and Intermediates for Herbicides, Insecticides and Fungicides. The Company has not issued any GDRS/ADRS and there are no warrants or any Convertible instruments. Subsidiary Companies: The Company has two unlisted (Indian and Overseas) subsidiaries. An Executive Director and an Independent Director of the Company are the Directors of Indian subsidiary. Two Executives (SMPs) of the Company are on the Board of Overseas subsidiary.

Particulars Consolidated Standalone

2015-16 2014-15 2015-16 2014-15

Gross Turnover (including Other Income) 71,027 77,147 70,996 77,147

Profit before Interest and Depreciation (EBIDTA)

7,450 6,998 7,465 7,006

Finance Charges 3,703 3,492 3,703 3,492

Depreciation and Amortization 2,676 2,464 2,676 2,464

Total Expenditure 69,956 76,106 69,910 76,097

Net Profit Before Tax (PBT) 1,071 1,042 1,086 1,050

Add: Share of profit from Associate Company

92 75 - -

Less: Provision for Tax 189 282 188 282

Net Profit After Tax (PAT) 974 835 898 768

Balance of Profit brought forward 11,827 11,484 11,691 11,415

Less: Depreciation on transition to schedule II of the Companies Act, 2013 (net of deferred tax)

- 304 - 304

Balance available for appropriation 12,801 12,015 12,589 11,879

Proposed Dividend on Equity Shares 156 156 156 156

Tax on Proposed Dividend 32 32 32 32

Surplus carried to Balance Sheet 12,613 11,827 12,401 11,691

Shareholder's Name Shareholding at the beginning of the year 2016

No. of shares % of total shares of the Company

% of shares pledged/ encumbered to total

shares

KLR Products Limited 113623500 72.88 0

K.Lakshmi Raju 3018360 1.93 0

Total 116641860 74.81 0

Sl. No

Particulars Name of the Company M/s. LR Research

Laboratories Pvt.Ltd (wholly owned subsidiary)

M/s. Nagarjuna Agrichem (Australia)Pty. Ltd

(overseas wholly owned subsidiary)

5 Total assets 7.91 - 6 Total Liabilities 7.91 - 7 Investments - - 8 Turnover - - 9 Profit/(Loss) before taxation 1.34 (16.22)

10 Provision for Taxation 0.49 - 11 Profit/(Loss) before taxation 0.85 (16.22) 12 Proposed Dividend - - 13 % of shareholding 100% 100%

1 Feb 2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

FINANCIAL STATEMENT Annual Results 2014 2015 2016 2014 2015 2016

Income statement Balance Sheet

(Rs Cr) Mar14 Mar15 Mar16 (Rs million) Mar14 Mar15 Mar16

Net Sales 635.84 745.51 691.40 Equity share capital 15.59 15.59 15.59

Expenses 6,28.67 701.50 635.77 Reserves 158.75 162.18 170.04

Borrowings 219.31 227.94 232.42

Operating Profit 7.71 44.01 55.94 Long term borrowing 186.39 200.74 232.42

OPM 1.13% 5.90% 8.09% Short term borrowing 32.92 27.20 0.00

Other Liabilities 230.41

260.91

193.92

Other Income 19.34 25.96 18.56 Fixed Assets 182.36 175.70 166.70

Interest 28.00 34.92 37.03 Investment 9.15 11.59 12.51

PBDT 1.80 35.14 37.62 Other Asset 414.57 467.46 427.04

Inventories 176.31 186.42 183.14

Depreciation 21.88 24.64 26.76

PBT -23.38 10.50 10.86 Trade Receivable 160.07 221.47 188.27

Provision For Tax -2.17 2.82 1.88 Cash and Bank 16.96 12.50 13.63

Loan and Adv. 48.93 35.05 31.68

PAT -20.52 8.35 9.74 Total Assets 624.06 666.62 611.97

EPS -0.00 +0.51 +0.60 Capital WIP 9.15 11.59 5.27

Cash Flow Statement 2014 2015 2016 Ratios Analysis 2014 2015 2016 (Rs Million) Mar-14 Mar-15 Mar-16 Mar-14 Mar-15 Mar-16

Cash From Operating 31.36 40.32 45.65 Sales per share 40.8 47.8 44.4

Operating Profit 32.31 72.21 77.97 Cash Flow per share 0.00 2.1 2.3

Working Capital -0.95 -29.67 -29.97 Dividend Per share 0.00 0.10 0.10

Taxes paid 0.00 -2.23 -2.35

Book Value Per share Price/Sales ratio

11.2 0.1

11.4 0.3

11.9 0.5

Cash From Investing -47.37 -18.21 -11.75 P/CF 107.8 6.9 8.7

Fixed Asset Purchase -62.64 -17.75 -13.38 P/B P/E

0.4 -3.3

1.3 27.1

1.7 32.8

Capital WPI -7.06 0.00 0.00 Dividend payout 0.00 18.7 16.0

Investment Purchase 0.00 0.00 0.00 Asset Turnover 0.16 1.30 1.26

Investment Sold 0.00 0.00 0.00

Cash From Financing 10.55 -26.57 -32.76

Receivable Days Working Capital/Sales Net Sales Growth

79.88 32.17

5.87

81.00 65.34 17.25

93.26 13.45 -7.26

Net Cach Flow -5.46 -4.46 1.13 Current Ratio 1.06 1.03 1.17

Quick Ratio Interest Cover Total Debt/Equity Total Debt/Mcap EV/CE EV/EBITDA EV/EBIT EV/Net Sales

0.65 0.16 1.26 2.81 0.45 9.41

11.02 0.44

0.61 1.30 1.29 1.07 0.65 6.11 9.43 0.57

0.59 1.29 1.27 0.75 0.87 7.07

60.77 0.76

1 Feb 2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

PEER COMPARISION

PEER ANALYSIS:

Considering peers, relative outperformance over the last year and the last months suggest a leading position. Nagarjuna Agrichem Limited trades at a lower P/B multiple (1.73) than its peer median (2.37). The market expects earnings to grow at about the same rate as its chosen peers and also does not seem to expect much improvement in its below peer

median returns. Nagarjuan has relatively low profit margin and median asset efficiency. Compared with its chosen peers, changes in the company annual earning are better than the changes in its revenue, implying better than median cost

control and some economies of scale. Nagarjuna return on asset currently and over the past five years has trailed the peer median and suggest the company might be operationally

challenged relative to its peers. The company median gross margin and relatively low pretax margin suggest high operating cost versus peers. The company seems to be over-investing in a business with median returns. Nagarjuna seems too levered to raise additional debt. Nagarjuna revenue increase slower than peer median, the market currently gives, the company a higher than peer median P/E ratio and may be

factoring in some sort of a strategic play. Our analysis rates Nagarjuna Agrichem Ltd as NEUTRAL relative to its peers.

Company Name Aimco Pesticides Ltd.

Bayer CropScience Ltd.

Bharat Rasayan Ltd.

Dhanuka Agritech Ltd.

Excel Crop Care Ltd.

Excel Industries Ltd.

Nagarjuna Agrichem Ltd.

PI Industries Ltd.

Punjab Chemicals & Crop Protection Ltd.

UPL Ltd.

Market Cap (₹ Cr.) 83.25 14454.1 920.30 3437.25 1908.50 521.38 521.52 34528.68 335.24 3.42 Earnings Per Share (EPS) 5.01 85 79.73 21.45 54.14 19.52 0.58 22.85 29.05 16.47 Dividend per share (DPS) 0 17 1.2 6.5 12.5 4.5 0.1 3.1 0 5

P/E Ratio ) 7.19 44.34 10.97 27.27 21.55 11.12 34.39 24.83 4.78 29.01

BV/share 9.03 496.02 344.57 96.05 344.79 160.44 11.76 84.16 44.65 93.69

P/B Ratio 3.99 7.6 2.54 6.09 3.38 1.35 1.68 6.74 3.11 5.1

PAT Growth 49.94 -22.44 6.7 1.16 -8.6 -38.89 16.87 28.82 900.56 52.31

Debt/Equity Ratio 0 0 0.76 0.02 0.05 0.43 1.27 0.13 3.1 0.38 Return on Assets (ROA) 8.34 7.6 10.25 17.16 7.22 6.28 1.41 14.74 9.14 8.84 Return on Equity (ROE) 76.85 15.88 26.11 24.24 16.65 12.96 4.99 30.79 96.39 18.72 Return on Capital Employed (ROCE) 74.36 24.82 25.39 31.96 21.08 17.09 11.68 36.04 21.75 19.89

1 Feb 2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

SENIOR MANAGEMENT: Mr.Amit Taparia : Vice President - Procurement & IT Mr.C.Varada Rajulu : Vice President - Manufacturing (Srikakulam) Mr.G.Jagannadha Rao : Executive Vice President - Exports Mr.Harish Chandra Bijlwan : Vice President - Operation & Technology Mr.J.Satyanarayana Das : Vice President - Manufacturing (Ethakota) Mr.Manikkam Natarajan : Executive Vice President - Marketing & Sales Mr.R.K.S.Prasad : Chief Financial Offi cer Mr.Satish Kumar Subudhi : Company Secretary & Head - Legal Mr.S.Chandra Sekhar : Sr. Vice President - Corporate HPD Dr.Venkatesan Subbusamy : Sr. General Manager - Registration & Regulatory Affairs BOARD OF DIRECTORS: CIN: L24219TG1986PLC016607 Mr.D.Ranga Raju : Chairman REGISTERED OFFICE: Mr.K.S.Raju : Director Plot No. 12-A ‘’C’’ Block, Mrs.K.Lakshmi Raju : Director Lakshi Towers, Mr.Sudhakar Kudva : Director No.8-2-248/1/7/78, Mr.K.Raghuraman : Director Nagarjuna Hills, Mr.N.Vijayaraghavan : Director Punjagutta, Mr.Raghavender Mateti : Director Hyderabad – 500082 Mr.V.Vijay Shankar : Managing Director Telangana State. Ph.-040-33605123 FACTORIES: Arinama Akkivalasa, Etcherla Mandal, Srikakulam, Andhra Pradesh. Ethakota, P.O: Ravulapalem, East Godavari Dist. Andhra Pradesh. R & D CENTRE: Nandigaon Village, Shadnagar, Kothur Mandal, Mahaboobnagar Dist. Telangana State.

1 Feb 2017 INVESTMENT IDEA NAGARJUNA AGRICHEM LTD

INDUSTRY CMP RECOMMENDATION TARGET TIME HIROZON

CHEMICAL Rs. 33.40 NA Rs. --- Year ---

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Disclosure of interest statement 1. Analyst ownership of the stocks mentioned above No

2.Served as an officer, director No