India Pesticides will hit the primary market on June 23. Should you subscribe?

Floating of 5th IPO in the month of June has cleared that promoters are in mood of expanding their operations and market is clearly strong. India Pesticides is going float on June 23 expecting to benefit from the rising equity market. This is going to be the 5th IPO which will be floated in June after Shyam Metalics, Blackstone-based Sona Comstar, Dodla Dairy and KIMS Hospitals. These five IPOs will garner an amount of Rs. 9,922.92 crores from the Indian market participants.

India Pesticides IPO Details:

  • Issuer Company: India Pesticides Ltd.
  • Industry:  Agro-Chemicals
  • IPO Size: 800 cr.
  • Price Band: 290-296
  • Issue Open Date: 23 June, 21
  • Issue Close Date: 25 June, 21
  • Listing Date: 05 July, 21
  • Minimum Lot Size: 50 shares
  • Face Value: 1 Re. Per share
  • Employee Discount:  NA
  • Retail Allocation: 35%
  • Listing Exchange: NSE, BSE

Composition of Issue Size

The issue size of 800 crores is a mix of fresh issue of Rs. 100 crores and offer for sale of Rs. 700 crore at the upper price band.

  • Offer For Sale comprises sale of up to 9.5 million shares by Anand Swarup Agarwal while 1.41 crore shares are sold by ASA Family Trust.
  • According to Draft Red Herring Prospectus, the issue comprises of Rs. 100 crores from issuance of fresh equity will be utilized for working capital requirements amounting at Rs. 80 crores while the rest will be utilized for general corporate purpose.

About the Company

Incorporated in 1984, India Pesticides Limited (IPL) is one of the leading agrochemicals manufacturers in India. The company operates in two business verticals; 1 Technicals and 2. Formulations. The company manufactures herbicide, fungicide Technicals, and Active Pharmaceuticals Ingredients (APIs). India Pesticides is the sole Indian manufacturer of several Technicals i.e. Folpet, Thiocarbamate, and Herbicide. The agri-chemical producer is a R&D driven manufacturer of Technicals with a growing Formulations business. The company is utilizing 75% of its total manufacturing capacity and has recorded 37.17% year-onyear growth in Technicals manufacturing (by volume) last year. The company has two manufacturing facilities located at UPSIDC Industrial Area at Dewa Road, Lucknow and Sandila, Hardoi in Uttar Pradesh, India. Aggregate installed capacity of the manufacturing facilities for agro-chemical Technicals is 19,500 MT and Formulations is 6,500 MT. The company has obtained registrations from the CIBRC for 22 agro-chemical Technicals and 125 Formulations for sale in India and 27 agro-chemical Technicals and 35 Formulations for export while we have a license to manufacture from the Department of Agriculture, Uttar Pradesh for 49 agro-chemical Technicals and 158 Formulations.

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 Industry Growth Drivers

  • Agriculture demand can never reduce in a country of 130 crores population.
  • India is currently the fourth largest producer of crop protection chemicals in the world and expected to emerge as an export hub for the crop protection chemicals manufacturing
  • Multinationals across the globe are taking advantage of cost-effective manufacturing in India along with availability of skilled labour.
  • Tightening of environmental norms, for example REACH Regulations, in developed countries and the slowdown of China are contributing to the growth of exports.
  • Supportive policies from the government to induce manufacturing will keep the agro-chemical firms active.
  • Government has also announced Production Linked Incentive (PLI) scheme to support ‘AtmaNirbhar Bharat’.

Peers Comparison                                             

A list of agro-chemical companies are listed on the Indian exchange and every company has been valued rich by the Indian market participants. The company will face tough competition from PI Industries, Sumitomo Chemicals, Dhanuka Agritech, Coromandel International.

Financials

India Pesticides is generating 56.7% of their revenues from exports which shows its strong presence in the global markets. The company holds a long-term relationship of over 10 years and some of their key customers include crop protection majors, such as, Syngenta Asia Pacific Pte. Ltd. and UPL Limited. On financials front, he company is growing its revenues at a at an annual growth of 38%. EBITD margins of the company stand at 28.9% much higher than the listed peers. Company might be capitalizing on equity as they a small amount Rs. 22.5 crores of debt on their balance sheet. Debt-Equity ratio of the company is 0.02x, which won’t have any effect on the credit worthiness of the company. The company will utilize the net proceeds for working capital requirements as the cash flows of the firm are not lucrative. Considering the upper price band at Rs. 296 and FY20 Earning Per Share (EPS) of 12.07, the company is demanding a P/E multiple of 24.52x, much lower than the Industry P/E of 59.22.

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