 | The company is one of the premier names in the crop protection industry. They have more than 115 formulations and 15 technical products in insecticides, weedicides, fungicides and PGRs for all types of companies, households and farms. Insecticides has signed deals with Nissan Chemical Industries and AMVAC (USA) for products like Pulsor, Hakama, Thimac and Nuvan, which are the most popular among their customers, along with Lethal, Victor and Monocil. They have also entered into a partnership with japanese OatSuka AgriTechno, to form a R&D facility to develop future products. |
Manufacturing is done in 4 formulation plants, 2 technical centers and 20 depots spread across India. The company has also more than 4000 distributors and 50 000 dealers for it's products.
According to Insecticides, the Indian agrochemicals market is expected to grow to $1.95 billion in 2014, and $3.5 billion in 2015, presenting a lot of opportunities for growth. The reason for it is, that India's consumption of agrochemicals per hectare is one of the lowest in the world - 0.58/ha, compared to 4.5 kg/ha in US or 11 kg/ha in Japan. This suboptimal usage translates to crop losses of 20-30% per year.
According to Insecticides, the Indian agrochemicals market is expected to grow to $1.95 billion in 2014, and $3.5 billion in 2015, presenting a lot of opportunities for growth. The reason for it is, that India's consumption of agrochemicals per hectare is one of the lowest in the world - 0.58/ha, compared to 4.5 kg/ha in US or 11 kg/ha in Japan. This suboptimal usage translates to crop losses of 20-30% per year.
Financial summary of Insecticides:
The average 5 year sales growth rate is 24%, profit growth rate is 14%, which means there has been a decline in margins, as can be seen on the chart above.
VALUATION
VALUATION
I did a three stage DCF valuation, with the following assumptions:
- discount rates of 8,10 and 12%
- terminal growth of 2%
- Growth for next 5 years (1st stage) of 15% and 5 years thereafter 7.5% (2nd stage)
- Growth for next 5 years (1st stage) of 10% and 5 years thereafter 5% (2nd stage)
- discount rates of 8,10 and 12%
- terminal growth of 2%
- Growth for next 5 years (1st stage) of 15% and 5 years thereafter 7.5% (2nd stage)
- Growth for next 5 years (1st stage) of 10% and 5 years thereafter 5% (2nd stage)
The company seems undervalued even under pessimistic conditions (10% discount rate and only 5% growth), giving a price of 511 Rs., giving a 19% upside from it's current levels of 430 Rs.
RISKS
- the main risk here seems to be competition, which is bigger and better capitalized: Bayer Cropscience, Atul, PI Industries, Monsanto, Dhanuka Agritech, Rallis India and others.
Overall, it's a very solid and fast-growing business in a competitive field. The shares seem undervalued a bit, but it all depends on the future growth they can achieve. I believe the Indian agrochemical industry is still in early stages, and the number of companies in the field demonstrates it's future potential.
- the main risk here seems to be competition, which is bigger and better capitalized: Bayer Cropscience, Atul, PI Industries, Monsanto, Dhanuka Agritech, Rallis India and others.
Overall, it's a very solid and fast-growing business in a competitive field. The shares seem undervalued a bit, but it all depends on the future growth they can achieve. I believe the Indian agrochemical industry is still in early stages, and the number of companies in the field demonstrates it's future potential.
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