Should we subscribe to this specialty chemicals IPO?
The company is eager to raise Rs 100 crore from new issues and Rs 700 crore shares through OFS for a total of Rs 800 crore. IPO funds would be used to fund the needs in working capital of the company and, more importantly, the general objectives of the company.
The India Pesticides IPO subscription is available in a price range of Rs 290-296 per share with the face value of one rupee each. Investors can subscribe to lots of 50 shares or their multiples. Therefore, the minimum investment in the lower price bracket could be Rs 14,500 plus associated fees.
Axis Capital and JM Financial Ltd are the leaders while KFIN technologies is the registrar. The shares will be listed on the BSE and the NSE.
Prospects for pesticides in India:
India Pesticides was established in 1984 as an agrochemical manufacturer and has developed capabilities in formulations and APIs (active pharmaceutical ingredients). The company mainly produces herbicides, fungicides and insecticides at its two factories in Uttar Pradesh – Lucknow and Hardoi.
The company has licenses and registrations to manufacture 22 technical agrochemicals and more than 125 formulations. It also has 27 agrochemical techniques and 35 formulations purely with an export perspective.
India Pesticides is the only Indian manufacturer and among the top five companies in the world for many technical products like Folpet and Cynomoxanil which are used as fungicides to control fungal growth.
It orders an export of 56 percent of its total sales. According to a Frost & Sullivan report, the company saw 37.17% year-over-year growth in technical product manufacturing (by volume) between 2020 and 21, setting a plant operating rate of 75%.
In FY 21, the company reported revenue of Rs. 655.38 cr. and profit of Rs. 134.51 crores.
In addition, the company reported an average EPS of Rs. 8.81 and an average RoNW of 30.37%. over the past three years.
Crop protection company:
RHP India Pesticides describes several key characteristics of the sector. Here is an overview of five crucial factors:
â¢ The global agrochemicals market is valued at $ 62.5 billion in 2019 and is expected to reach US $ 86 billion by 2024, with a CAGR of 6.6%. This growth will be influenced by the increase in population and wealth, which will lead to a change in consumption patterns. It is necessary not only to increase production to meet demand, but also to ensure that the nutritional needs of an increasingly affluent population are met. The use of crop protection chemicals is likely to see a change.
â¢ In the global agrochemicals market, the use of bio-pesticides is expected to increase by 16% over the next five years, compared to a 5% growth rate recorded for synthetic pesticides worldwide. Herbicide use is expected to increase by 19.1 percent, the fastest, during this interval.
â¢ Brazil, France, Canada, Germany and the United States account for 25% of total pesticide imports in the world. Major exporting countries to global geographies include China, Germany, India, France, and the United States, accounting for over 65% of the market’s export share. The four largest producers of agrochemicals in the world are the United States, Japan, China and India.
â¢ India was the world’s third largest exporter of pesticides by volume in 2018. China leads pesticide exports with 27% market share in global exports, followed by Germany (8.3%), the India (8%), the United States, Belgium and France. .
â¢ Insecticides represent the highest market share in the Indian crop protection chemicals market, accounting for about more than half of the total market. India has nearly 10,000 types of phytophagous insects. In the agricultural value chain, agrochemicals are the last external stimulus provided to plants.
The RHP also says that the push by the Indian government as part of the Aatmanirbhar campaign to increase domestic manufacturing and reduce dependence on imports could act as a boost to the domestic sector.
The management of the company includes Anand Swarup Agarwal and the ASA Family Trust. Agarwal, according to the company’s website, is a law graduate with three decades of experience in the manufacture, formulation and marketing of pesticides. He is aided in the business by his two sons Vishal and Vishwas Agarwal, both business graduates with post-graduate degrees in business management.
Dr VK Singh, PhD in Chemistry, is responsible for managing the company’s production units and ensuring a continuous supply of standard quality products. Dr K. Adeppa, M. Sc., Ph.D. (Chemistry) with rich experience in the development of new pesticides, is constantly working on process optimization and new product development. Ajay Srivstava, B. Sc., A long-time quality control chemist runs one of the laboratories, attached to the formulation unit
Competitors and peers:
The India Pesticides RHP document also details its competitors. UPL Ltd, PI Industries, Jubilant Life Sciences, Dhanuka Agritech, Bharat Rasayan, Meghmani Organics, Rallis India and Indofil Chemicals are mentioned as listed competitors.
UPL Ltd’s revenue of Rs 9,641 crore in 2019-2020 is the highest with a net profit margin of 6.1%. PI Industries reported Rs 3,415 crore and a net profit margin of 13.4%. PI Industries reported a significant share or 66 percent of revenue from exports.
Talk about exports and exports of Meghmani Organics in 2019-2020 amounted to 69% with total turnover of 1,624 crore. In terms of net profit margin, the most profitable company in this industry is Gharda Chemicals with a net profit margin of 18.3% – Rs 3,088 crore in revenue and 565 crore in profit.
Peers such as PI Industries were trading at a PE of 59.29 (EPS of 47.38) while UPL Ltd had a PE of 267.99 (EPS of 2.88). India The post-release BPA of pesticides is estimated at 11.668. The company in its RHP estimates baseline EPS at 12.07.
At this level, the IPO of India Insecticides is a PE of 24.04 versus an industry average PE of 36.
Reports also suggest a premium of Rs 90 to subscribe to the IPO.
Warning: This article is intended for informational purposes only and should not be construed as an investment offer. Readers are encouraged to engage with a SEBI registered professional investment advisor for personalized advice. The main image is attributed to The Associated Press.