Insecticides (India) Limited

Insecticides (India) Limited                                                                                               cmp - 317

In the union budget 2016, GOI has given highest focus to rural and agriculture development. The higher growth in agriculture sector will encourage farmers to boost their agricultural production and it will provide huge opportunity for the agrochemicals sector as well.

In December 2015, NITI Aayog, Government of India has submitted the report on agri sector with shocking results that crop yield losses in India due to pests, which include all biotic stresses such as weeds, insect-pests, diseases, nematodes and rodents, range from 15 to 25%. It is Rs. 60,000 crore annual loss of agricultural production. Consumption of crop protection products in India is amongst the lowest in the world at 0.6 kg per hectare as compared to 5 kg per hectare in the UK and 7 kg per hectare in the USA. The growth of agrochemical industry is directly proportional to the growth of the agriculture sector. In order to protect the crop, the farmer requires agro-chemicals to enhance productivity. There is huge scope of agro chemical business and Insecticide India is well positioned to take the advantage.

NITI Aayog report is available on  below link, refer 3.2.3 pesticides

http://niti.gov.in/mgov_file/Raising%20Agricultural%20Productivity%20and%20Making%20Farming%20Remunerative%20for%20Farmers.pdf

Company Overview

Insecticides India Ltd (IIL) is  one of the top Indian agrochemical company. It is engaged in the manufacturing of pesticide formulations for crop protection as well as technical grade chemicals such as Imidacloprid, Acetamiprid, Dichlorvos, Lambda Cyhalothrin, d-Trans Allethrin, Glyphosate, Butachlor and Thiamethoxam, providing the competitive edge over competitors. It has an extensive portfolio of 15 technical and 110 products constituting of insecticides, herbicides, fungicides, plant growth regulators (PGRs), bio fertilizers  and commands ~ 8% of market share. The company has five state-of the-arts ultra-modern production facilities with world class automated machineries for the formulation and technical synthesis of agro chemicals. Its formulation plants are situated at Chopanki (Rajasthan), Udhampur (J&K), Samba (J&K) and Dahej (Gujarat), while the technical synthesis plants are situated at Chopanki (Rajasthan) and Dahej (Gujarat). IIL has emerged as a strong player in the branded formulations market with a portfolio more than 90 branded products. The company has a pan-India presence through its extensive network of over 5,000 distributors and more than 60,000 dealers across the country. IIL is one of the few fully integrated companies engaged in the formulation, technical production, marketing and the R&D of agro chemicals.

Strong Product Mix 

Company manufactures off-patented technical products, formulated products and patent branded products through acquisition, collaboration, and tie-ups. The company has market leading power brands like Lethal, Victor, Thimet, Hakama, Pulsor, Monocil, Hijack, Xplode and Nuvan. Company has track proven record of turning around acquired off-shelf brands into market leaders. It has initially built its product portfolio via acquisitions such as Mantari from Ranbaxy Group and Monosil from Nocil. It also has international tie-ups with AMVAC and Nissan Chemicals for brand licensing, marketing and distribution rights. It has acquired and in-licensed brands as well as created its own brands such as Hijack, Selector, Strike, Flite 71, Victor, Monocil, Xplode, Lethal, Nayak, Sharp, Indan 4g, Super fighter, Aflatoon, Bravo, Titan, Metacil, Milstim, Mycoraja, Prime gold, and Olympic. It primarily relied on reverse engineering off-patent products to create the products behind these brands. It has an in-house R&D facility, accredited by NABL & recognized by DSIR with 14 scientists, responsible for new product creation. Navratnas (the top 9 brands) & Super 11 brands (the next top 11 brands) contribute 53% and 15%, respectively.

R&D Center and  JV with OAT Agrio (Japan)

Company has an R&D centre at Chopanki (Rajasthan) for developing processes for new environmental-friendly formulations. The center is accredited with NABL and DSIR (Department of Scientific and Industrial Research). New products under agrochemicals have to be approved by Central Insecticides Board (CIB). This R&D centre is dedicated to capitalize huge opportunity available in off patent molecules. The patent expiry of several agro chemical products in the next 2-3 years is likely to provide an opportunity of ~ USD 3 bn market for generic players worldwide by 2019.

The company has set up dedicated  R&D centre for JV with Otsuka Agri Techno Company Limited of Japan. It has started to develop 5-10 products and started filing for patents. It will take 1-2 years for commercialisation of these products. The joint venture agreement with OAT Agrio (Japan) is to provide the technological know-how required in the invention of new agricultural molecules for domestic and international markets besides managing intellectual property. The JV will enable the company to launch new patented products in India and 14 other countries in Indian Sub-continent, Middle East, East–African countries with exclusive distribution right.

Investment Rationale

IIL has commissioned capacity expansion with INR2.5b capex over FY11-15, now it has an annual capacity of more than 1.10 lakh tonnes of formulations and 13,800 tonnes of technicals. It can double revenues from existing capacities without any major incremental capex because currently it utilize 60 % of installed capacity. With capacities in place, it can ramp-up of revenues from existing branded products, launch of new molecules, potential scaling up of technicals business in FY16 -17.

Off-patented technical products, of which ~50-60% are consumed in-house for manufacturing formulations and the remaining are sold in the open market.

Company is well placed to participate in CRAMS and third-party manufacturing business with large manufacturing and R&D capacities in place. The opportunity is attractive with increasing presence of MNCs in India (which have the technical know-how and capability to develop new molecules) and cost-effective manufacturing abilities.

IIL is focusing on high growth emerging and developed markets for Branded Formulations / Technical products. The company is scouting for export markets in Japan, Europe and the US. The latest manufacturing facility i.e. Dahej is close to the port. Therefore, it is best suited to cater to the export market demand. 

Company has issued 16.4 L shares  under QIB @ 509 to Sundaram, SBI, HDFC, Morgan Stanley and Merrill Lynch in Aug 2015.

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/F4662BFD_119A_4301_A350_7B70B3639622_191117.pdf

Management

Visionary management  has successful proven track record. They have bought several off shelf brands and converted them into leading brands. Recently below future business guidelines are given by Managing Director Rajesh Aggarwal of Insecticides India -"We are aiming to touch Rs 2,000 crore in the next four years," and hoping that IIL would be a USD 1 billion firm within next decade. The company is exporting agrochemicals worth Rs 15-20 crore and plans to cross Rs 100 crore-mark in the next two years". "We are working on to develop new and high margin products, including product extensions of established brands and expand the revenue share of current product portfolio at the same time," 

http://www.moneycontrol.com/news/business/iil-aims-to-double-turnover-to-rs-2000-crnext-4-yrs_5349021.html

Conclusion

Insecticides (India) Limited is fastest growing fully integrated agro-chemicals company. The wide acceptability of its Tractor brand and company maintain deep connection with the farming community. Company has Pan India presence and deep penetration with extensive network. Stock corrected heavily in recent market correction and poor results in Q3 due to floods. It is trading at half of industry average P/E. Coming two quarters are best for pesticides & agro chemicals sector. It is providing best investment opportunity for short term as well as for long term.