India Pesticides IPO: Strong fundamentals, R&D capabilities, reasonable valuations; should you subscribe?

The Indian agro-chemicals industry is fragmented in nature and India Pesticides faces competition from different domestic and global manufacturers

India Pesticides’ Rs 800-crore IPO will open for subscription on Wednesday, June 23, 2021, in the price band of  Rs 290-296 per share of the face value of Re 1, each. The company is among the fastest-growing agrochemical manufacturers in terms of volume of Technicals manufactured. The company’s business verticals include Technicals, Formulations and APIs. Currently, the company manufactures eight Technicals, two APIs and over 30 Formulations. Considering the FY21 adjusted EPS of 11.68 on a post-issue basis, the company is going to list at PE of 25.34 with a market cap of Rs 3,408.8 crore whereas its peers namely Dhanuka Agritech, UPL Ltd, Rallis India and PI Industries are trading at a P/E of 21.4, 20.4, 31.5, 58.6 respectively, analysts said. 

India Pesticides’ domestic and global competitors

The Indian agro-chemicals industry is fragmented in nature and India Pesticides faces competition from different domestic and global manufacturers for different products that they manufacture. In the domestic markets, its competitors include UPL Ltd, PI Industries Ltd and Jubilant Lifesciences Ltd, while in the international markets, it faces competition from companies such as China National Corporation Ltd, Sumitomo Chemicals Co. Ltd and BASF SE, in the manufacture of agro-chemicals, said analysts at Axis Capital. “Some of their competitors in the agro-chemicals industry may have greater financial resources, technology, research and development capability, greater market penetration and operations in diversified geographies and product portfolios, which may allow their competitors to better respond to market trends,” they added.

India Pesticides IPO: Should you subscribe?

Last week, India Pesticides announced the IPO price band and following that its grey market premium has now jumped to Rs 90-100 and is experiencing volatility, said Yash Gupta Equity Research Associate, Angel Broking. Gupta expects the grey market premium for India Pesticides will be volatile for the next 2-3 days and recommends investors to focus more on the fundamentals of the IPO. The IPO has been priced at the PE levels of 24.5 times at a higher band of the price range of Rs 296. Company earns 56% of revenue from the export market and 44% of revenue from the domestic market. “Company’s overall fundamentals look very attractive. We have a positive outlook for the Indian Pesticides Limited IPO,” Gupta said.

Those at Marwadi Shares and Finance have given a ‘subscribe’ rating to the issue as the company is one of the fastest-growing agrochemical companies in India with strong R&D capabilities and a diversified product portfolio. Also, the company is available at reasonable valuations as compared to its peers.  

The growth in revenue and profits seem healthy, Rajesh Singla, Founder & CEO of pre-IPO consultancy firm Planify India, told Financial Express Online, adding that operating margins are very strong as compared to the industry which is close to 28 per cent. Despite COVID-19, the industry has grown significantly 33 per cent on-year and India Pesticides is in line to it. “Only negative is company receivable debt which is close to 120 days and (Cash Flow from Operations)/EBIDTA 45 per cent which is 75- 80 per cent for the Industry. Hence, the Cash Conversion Cycle is big as compared to Industry, Singla said. “Company offers IPO at price band where investors will get the shares at P/E of 24 w.r.t. industry P/E of 36. Hence something is left on the table for the investors. Company IPO should easily float through with strong participation from the retail investors,” Rajesh Singla, said.

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