Transcript
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SECTOR REPORT 13 MAY 2016
Agrochemicals
Good monsoon + rich strategy India’s total food demand continues to rise in
tandem with its population, disposable income and ashift in preferences. With more pressure on limited
land (17% of global population on 2% of land),
improving crop yields and minimising farm losses are
key to raising food supply.
Agrochemicals play a vital role in raising crop yields,
but are under-penetrated in India. According to
studies, there is 15-25% crop loss owing to non-usage
of pesticides in the country. The structural drivers for
the domestic agrochemical market are (1) Lowerpenetration, (2) Efficient products, (3) Shift towards
cash crops, and (4) Increasing farmer awareness. The
government’s initiatives to double farm incomes by
2022 will further support demand. A few players are
also focusing on the export market owing to India’s
competitiveness in manufacturing at a lower cost.
A normal monsoon will be crucial for Indian agri-
inputs, as only ~46% of the net cultivated area is
irrigated. There are challenges galore for the sector,which is at the end of the value chain (after seeds
and fertilisers). However, things seem to be looking
up with the IMD and Skymet forecasting rainfall to
be 106% and 105% of long period average in 2016.
We have focused on domestic players like Dhanuka
Agritech, Insecticides India and Rallis India. These area proxy play for an uptick in the domestic market.
Investment arguments
Dhanuka Agritech Ltd (DAL): (1) Present only inasset-light formulation business, (2) Focus on in-licensing specialty molecules (~75% of portfolio)via tie-ups with MNCs, (3) Regular productlaunches, (4) Revenues and PAT to grow at a CAGRof 23% and 34% over FY16-18E, and (5) Zero netdebt and end of capex phase. Initiate coverage
with a BUY. Our TP is Rs 700 (20x FY18E EPS). Insecticides India (IIL): (1) Present across branded
and technical business, (2) Strong productportfolio led by R&D, brand acquisitions and tie-ups with MNCs, (3) Top-20 products (~50% of rev)are growing at ~30%, (4) Focus on R&D formolecules going off-patent, (5) Capex is over, netD/E of 0.9x FY16E, and (5) Sales and PAT to growat a CAGR of 16% and 31% over FY16-18E. Initiatecoverage with a BUY. Our TP is Rs 535 (16x FY18E)
Rallis India: (1) New product launches, (2) CSMrevenues are likely to begin, (3) Robust uptick inseed business, (4) Strong distribution network, and(5) Sales and PAT growth at 16% and 31% CAGRover FY16-18E. Maintain BUY with a TP of Rs 250(20x FY18E EPS).
Sector PerspectiveMCap
(Rs bn)
CMPRating
TP Revenues (Rs mn) PAT (Rs mn) ROE (%)
(Rs/sh) (Rs/sh) FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
DAL 31.5 630 BUY 700 8,308 10,219 12,524 978 1,318 1,750 21.8 24.6 26.9
IIL 9.1 441 BUY 535 9,785 11,315 13,139 402 535 691 12.9 15.0 16.7
Rallis 40.6 209 BUY 250 16,279 18,680 21,927 1,430 1,904 2,435 16.7 19.9 22.3Source: Company, HDFC sec Inst Research
Absolute Stock Returns (%)
3M 6M 1Y
DAL 20.5 45.9 6.1
IIL 47.9 24.4 (9.9)
Rallis India 40.4 6.2 (1.0)
BSE 500 13.8 1.2 (1.0)
Valuation (on FY18E)
P/E (x)P/BV
(x)
EV/EBITDA
(x)
DAL 18.0 4.4 12.1
IIL 13.2 2.0 8.8
Rallis India 16.7 3.5 10.9
Satish Mishra
satish.mishra@hdfcsec.com
+91-22-6171-7334
Deepak Kolhe
deepak.kolhe@hdfcsec.com+91-22-6171-7316
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
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AGROCHEMICALS : SECTOR REPORT
Contents
Indian agriculture under a cloud ...................................................................................................................... 3
Reasons for poor condition of India farmers .................................................................................................... 4
Lower crop yields ................................................................................................................................................. 4
Impact of irrigation .............................................................................................................................................. 4Non-remunerative price for crops ....................................................................................................................... 8
Lack of marketing infrastructure ......................................................................................................................... 9
Focus on the quality of agri-inputs ................................................................................................................ 10
Agrochemicals .............................................................................................................................................. 11
India players’ strategies ................................................................................................................................ 13
Companies
Dhanuka Agritech ................................................................... ........................................................................ .......... 14
Insecticides India ...................................................................................................................................................... 25
Rallis India ................................................................................................................................................................ 35
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AGROCHEMICALS : SECTOR REPORT
Indian agriculture under a cloud
The agriculture sector’s contribution to the Indian
GDP has fallen from ~28% in FY94 to ~14% in FY14.
The employment share has declined from ~65% to
~49%. A higher share of employment vs. lowercontribution has resulted in lower per capita
income for the sector (source: Government of
India reports).
India has the second-largest arable land in the
world after the US. However, the share of arable
to the total land is highest in India at ~49%. This
gives limited/no room for further increase.
Arable Land Vs. Total Lands (As per FY12)
Country Population(mn)
Arable land(mn ha)
Arable % of totalland
China 1,361 139 15
India 1,243 145 49
USA 316 165 18
Brazil 198 59 7
Japan 127 4 12
Germany 81 12 33
France 64 21 39
Italy 60 8 26
Spain 46 14 27Argentina 42 27 10
Canada 35 42 5
Australia 23 47 6
Source: World Bank, HDFC sec Inst Research
Owing to the high arable land, India in one of the
top producers of many crops.
India In Food Production (FY15)
Crop Output (mT) RankRice 103 2
Wheat 96 2
Sugarcane 355 2
Fruit + Veg 205 2
Cotton 35 2
Maize 23 6
Source: Ministry of agriculture, Company, HDFC sec Inst Research
India is the largest producer of spices, pulses, milk,
tea, cashew and jute; second-largest of wheat,rice, fruits and vegetables, sugarcane, cotton and
oilseeds
The story of the Indian farmer, however, is not as
glorious. About 36% of the agricultural households
have been issued BPL (below poverty line) cards.
About ~5% are Antyodaya cardholders, which are
for ultra-poor households (source: MOSPI, GOI).
At an all-India level, the average monthly income
of agricultural households between Jul-12 and
Jun-13 was estimated at Rs 6,426. This included
net receipts from cultivation, farming of animals,
non-farm business and income from
wages/salaries. (source: MOSPI, GOI)
India has the second-largest
arable land and is among the
top producers of key crops
Around half of India’s
population is dependent on
agriculture, which contributes
~14% to GDP
~85% of farmers own marginal
(<1Ha) or small (<2 Ha) lands
40% of agriculture households
are below poverty line
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Reasons for poor condition of India farmers
1.
Lower crop yields
2. Non-remunerative price for crops
3.
Reducing farm size per farmer
4.
High risk associated with natural calamities
Lower crop yields
In the charts below, we have compared yields of
the top-5 crop producing countries. In most cases
(except banana), our yield is below or equal to the
global average.
The sequence of the countries is based on their
global ranking in production.
Yield (000’ kg/ha)
Rice Wheat
Potato Banana
Source: MOPSI, GOI reports, HDFC sec Inst Research
There are multiple reasons for lower crop yields:
(1) Poor irrigation facility, (2) Poor quality and
quantity of agri-inputs (seeds, agrochemicals and
fertilisers), (3) Conventional style of farming, i.e,less technological advancement, and (4) Wastage
during farming.
Impact of irrigation
Crop yields vary significantly within states. These
can be attributed to an array of reasons such as
technology adoption, quality of agri-inputs and
infrastructure availability. However, it has been
observed that there is a direct relation between %
irrigated area with crop yield.Crop Yields For Food Grains Vs. Irrigated Area
Source: MOPSI, GOI reports, HDFC sec Inst Research
There are exceptions to the rule. For instance, in
Bihar and Assam the relation between irrigation
and yields are not direct. This may be owing to
frequent floods in Bihar and good rains in Assam.
Crop yields in India are lower
compared to other key
producers
Key reasons for lower yields:
(1) Poor quality of agri-inputs
(2) Inadequate irrigation facility
(3) Less usage of technology
Crop yields in different states are
directly proportional to the
irrigation facility
-
2
4
6
8
W o r l d
C h i n a
I n d i a
I n d o n e s i a
B a n g l a d e s h
V i e t N a m
-
2
4
6
8
W o r l d
C h i n a
I n d i a
U S A
F r a n c e
R u s s i a n F e d .
-
10
20
30
40
50
W o r l d
C h i n a
I n d i a
R u s s i a
U k r a i n e
U S A
-
10
20
30
40
W o r l d
I n d i a
C h i n a
P h i l i p p i n e s
E c u a d o r
B r a z i l
0%
20%
40%
60%
80%
100%
120%
-0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
M a h a r a s h t r a
R a j a s t h a n
C h h a t t i s g a r h
O d i s h a
K a r n a t a k a M P
J h a r k h a n d
G u j a r a t
A s s a m
B i h a r
U t t a r a k h a n d
A l l I n d i a
T a m i l N a d u U P A P
W e s t B e n g a l
H a r y a n a
P u n j a b
% Irrigated Yield - LHS
Yield '000 kg/ha % Irrigated
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India accounts for about ~17% of the world’s
population, but only ~4% of the world’s fresh
water resources. The distribution of these
resources is uneven across states.
And since only ~46% of the net cultivated area is
irrigated, there is high dependency on monsoon.
Low Irrigation Penetration
Source: Ministry of Agriculture, HDFC sec Inst Research
Uncontrolled and non-scientific water usage has
led to water scarcity in the country. As per
international norms, a water-stressed and water-
scarce country is one where the per capita water
availability goes below 1,700 m3 and 1,000 m3,
respectively. India is already a water-stressed
nation with 1,544 m3 per capita availability, and is
sprinting towards water scarcity.
Of the total available water, irrigation consumes
~84%, industrial ~12% and domestic usage ~4%.
Over the years, there has also been a significant
shift in the sources of irrigation in the country. The
share of canal in net irrigated area has declined
from ~40% in 1950-51 to ~24% in 2012-13.
Consequently, the share of groundwater sources
has increased from 29% to a whopping 62% duringthe same period (source: GOI reports).
Source Of Irrigation In India
Source: Ministry of Agriculture, HDFC sec Inst Research
However, the scarcity is not yet reflected in the
usage of water. As per GOI reports, India uses 2-4
times more water for crop production compared
to other major agricultural countries like China,
Brazil, and the US.
Hence, India can save ~50% water by adopting
scientific and efficient irrigation methods. This will
expand the area under irrigation and also result in
water conservation.
Only ~46% of India’s cultivated
area is irrigated and the rest is
dependent on the rains
The situation is worrisome as
India has 4% of global fresh
water resources
A higher usage of underground
water (62% vs. 29% over the
past 65 years) has made India a
water-stressed nation
-
10
20
30
40
50
60
-
20
40
60
80
100
120
140
FY51 FY61 FY71 FY81 FY91 FY01 FY11
Area (mn H) (LHS) Area under i rrigation (%) (RHS)
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Monsoon is make or break for Indian agriculture
Poor irrigation infrastructure has led to a strong
relation between Indian agriculture and monsoon.
Relation Between Agriculture Growth And Monsoon
Source: Ministry of Agriculture, HDFC sec Inst Research
Strongest El Nino in 2015 since 1997
The rainfall recorded in India was 88% and 86% of
LPA (long period average) in 2014 and 2015.
Since 1950, there have been 22 El Nino (bad
monsoon scenario) events of varying durations
and intensities. Of the 21 El Nino before 2015,
nine have been followed by La Nina (good
monsoon scenario).
The 2015 El Nino has been the strongest since
1997. However, forecasts of a La Nina in 2016
have revived hopes of a normal monsoon (source:
Economic survey 2015-16).
Cumulative Rainfall (Jun-Sep) (LPA) (%)
Source: IMD, Economy survey, HDFC sec Inst Research
A study over FY81-16 has shown that agriculturegrowth during La Nina is as high as 8.4% vs. an
average of 3%. El Nino results in negative growth.
Source: Economic survey 2015-16, HDFC sec Inst Research
A normal monsoon in 2016 is essential for the
agricultural sector, which has been in distress for
the past two years.
0
20
40
60
80
100
120
F Y 0 2
F Y 0 3
F Y 0 4
F Y 0 5
F Y 0 6
F Y 0 7
F Y 0 8
F Y 0 9
F Y 1 0
F Y 1 1
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6
EL Nino La Nina
Lack of irrigation facility has
resulted in direct relation
between monsoon and
agriculture growth
Agriculture growth has been
robust in La Nina years, which is
expected in 2016
-25
-20
-15
-10
-5
0
5
10
-10
-5
0
5
10
F Y 0 2
F Y 0 3
F Y 0 4
F Y 0 5
F Y 0 6
F Y 0 7
F Y 0 8
F Y 0 9
F Y 1 0
F Y 1 1
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6
Agriculture GDP Growth (RS) Monsoon Surplus/(Deficit)
% %
8.4
3.73
-2.1-4
-2
0
2
4
6
8
10
La Nina years Years other
than EL Nino
and LA Nina
Period average El nino years
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Robust outlook for monsoon in 2016
Things seem to be looking up after two
consecutive years of monsoon deficit. Two key
metrological agencies, IMD and Skymet, have
predicted rainfall to be 106% and 105% of LPA
(long period average) in 2016.
These forecasts have improved the sentiments of
all stakeholders in the sector.
Key points from the IMD forecast
The El Nino conditions have started weakening.
This year’s rainfall is likely to be 106% of the LPA,
with a model error of +5%.
Probability For Monsoon-2016 By IMD
CategoryRainfall Range
(% of LPA)
Forecast Probability
(%)
Deficient < 90 1
Below Normal 90 - 96 5
Normal 96 -104 30
Above Normal 104 -110 34
Excess > 110 30
Source: IMD, HDFC sec Inst Research
Key points from the Skymet forecast
The monsoon in 2016 is likely to be 105% of LPA.
Central India and west coast are likely to receive
good rainfall.
Tamil Nadu, North East India and some regions in
Karnataka may receive less rainfall.
Probability For Monsoon-2016 By Skymet
Probability %
Drought 5
Below normal 10
Normal 30
Above Normal 35Excess 20
Source: Skymet, HDFC sec Inst Research
Initiatives taken by Government of India
Irrigation projects worth Rs 58.4bn (vs. Rs 53bn
FY16BE) haves been budgeted under the Pradhan
Mantri Krishi Sinchai Yojana (PMKSY). Under this
scheme, 28.5 lakh hectares of land will be
irrigated.
The implementation of 89 stalled irrigationprojects under AIBP (Accelerated Irrigation
Benefits Programme) will be fast tracked.
This will help irrigate 80.6 lakh hectares. These
projects require an expenditure of Rs 170bn next
year and Rs 865bn in the next five years.
The government is focusing on water conservation
and judicious usage of water. Currently, flood
irrigation method is followed in India, which leads
to huge water loss. Focus on sprinkler and dripirrigation systems will lead to lower consumption.
The outlook for 2016 is robustwith both IMD and Skymet
predicting above-normal
monsoon
The Indian government is
implementing several projects to
improve irrigation infrastructure
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Non-remunerative price for crops
Aim to double farmers’ income: Lower farm
income is a key reason for the poor state a
majority of the small farmers are in. The government has targeted to double farmers’
income by 2022. It is planning different initiativesat farm and non-farm levels to achieve its goal.
Factors such as (1) MSP for crops, (2) Type of
crops, and (3) Marketing infrastructure impact
remuneration for farmers.
Is the increase in MSP sufficient?
There has been a significant increase in MSP of key
crops over the past few years.
MSP (Prices in Rs/quintal)
Commodity FY10 FY15 FY16% Change
FY10 to FY16
Paddy 950 1,360 1,410 48%
Red Gram 2,300 4,350 4,625 101%
Green Gram 2,760 4,600 4,850 76%
Black Gram 2,520 4,350 4,625 84%
Groundnut 2,100 4,000 4,030 92%
Soyabean 1,390 2,560 2,600 87%
Cotton 2,500 3,750 3,800 52%
Wheat 1,080 1,450 1,450 34%
Source: Ministry of agriculture, HDFC sec Inst Research
However, MSP is not applicable for all crops and
not implemented fully across all states. Sometime
owing to excess production and absence of MSP,
farmers end up with huge losses.
The sale of food grains under the public
distribution system (PDS) further reduces the
demand and, hence, the price of grains.
Change in crop pattern
Low-value cereals dominate Indian farming. There
has been some shift towards high-value crops over
the past decade, but they still remain significantly
small.
The value of output per hectare from fruits and
vegetable was ~Rs 3.3 lakh vs. ~Rs 0.4 lakh for
cereals, Rs 0.3 lakh for pulses and Rs 0.5 lakh for
oil seeds (source: GOI reports for FY14).
Distribution Of Cropped Area Across Major Crops
Year 2001-02 2013-14
Rice 24% 22%
Wheat 14% 16%
Coarse Cereals 16% 13%
Total Cereals 54% 51%
Pulses 11% 13%
Total Food Grains 65% 64%
Sugarcane 2% 3%
Condiment and Spices 1% 2%
Fruits 2% 4%
Vegetables 3% 5%
Oilseeds 12% 14%
Fibres 5% 7%
Tobacco 0% 0%Other Crops 8% 4%
Total 100% 100%
Source: Ministry of agriculture, HDFC sec Inst Research
The share of fruits and vegetables has doubled
over the past two decades. However, it is still
below 10%.
The easiest way to increase farm
income is by increasing MSP and
switching to cash crops
Bringing more crops under MSP
and improving cold
storages/supply chain are key
factors
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Lack of marketing infrastructure
Lack of supporting infrastructure is one of the key
reasons for the lower share of high-value crops.
These crops require more capital and technology,
quality inputs, support services and timely
information.
Fruits and vegetables are not part of the MSP
scheme and, hence, are completely exposed to
market dynamics.
A shortage of cold storage facilities and perishable
nature of the fruits and vegetables have resulted
in a majority being sold in local markets.
Inadequate supply chain infrastructure, too many
intermediaries, and gaps in the APMC Act haveresulted in low realisation for even high-value
crops.
In many states, farmers are forced to sell their
produce through APMC. Unless farmers are given
full freedom, there will always be middlemen in
the system and the farmers will receive only a
small pie of the final realisation.
There should be impetus on agro-processing
industries, cold storages, refrigeratedtransportation facilities, and retail chains. The
development of contract farming, cooperatives,
and government support will provide market
access to farmers and will reduce price risk.
Unless these gaps are addressed, farmers will stick
to low, but assured, value crops like food grains.
Reducing farm size per farmer
India’s rising population and stagnant farm area
have resulted in a highly fragmented land holding.
The average land holding has reduced from 1.84
hectares in 1980-81 to 1.15 hectares in 2010-11.
Land Holding in India
1980-81 2010-11
Holding
(%)
Area
(%)
Holding
(%)
Area
(%)
Marginal (< 1 ha) 56% 12% 67% 22%
Small (1 to 2 ha) 18% 14% 18% 22%
Semi-Medium
(2 - 4 ha)14% 21% 10% 24%
Medium (4 - 10 ha) 9% 30% 4% 21%
Large (> 10 ha) 2% 23% 1% 11%
Source: Ministry of agriculture, HDFC sec Inst Research
A fragmented land area makes usage of
technology unviable. Only ~15% of farmers (~55%
of area) have land parcels more than two hectares
that can benefit from mechanisation.
The absence of a transparent land leasing law is a
major problem. In many cases, landowners are not
farming and lands are given to sharecroppers.
Tenants are not able to benefit from differentgovernment schemes without documents.
Landowners are also apprehensive about
providing tenant details, as they fear losing their
land.
The usage of mechanisation and implementation
of government schemes are viable only post the
consolidation of land holdings. With rising
population and further fragmentation of lands, the
only solution is a transparent land leasing law that
protects the interest of all stakeholders.
Inadequate marketing
infrastructure and gaps in APMC
Act are key reasons for farmers’
poor condition
Small land holdings make
adoption of mechanisation
unviable in India
A transparent land lease law
may be a game changer and
lead to consolidation of lands at
the operational level
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Risks associated with natural calamities
Indian farmers are exposed to natural disasters
such as droughts, floods, cyclones, storms,
landslides, earthquakes, etc. These can lead to
extreme distress in the absence of government
support.
So far, most relief measures were available to
farmers with outstanding loans from banks.
However, there is nothing for marginal farmers,
landless workers and sharecroppers.
There is a need for a policy that provides a
minimal amount of relief to the farmers
immediately after the calamity. Damages should
be compensated in a given timeframe.
Direct transfer of money to the farmers’ bank
accounts can improve transparency and efficiency
of relief measures.
Government initiatives
Crop insurance scheme: The government has
provided Rs 55bn (vs. Rs 26bn in FY16BE) for this
scheme, which aims to insulate farmers from
natural calamities and reduce their losses.
Agri credit: The government allocated an all-timehigh of Rs 9.0tn for agricultural credit in FY17
compared to Rs 8.5tn YoY. Provision of Rs 150bn
has been made in FY17BE towards interest
subvention. These steps will reduce the burden of
loan repayment on farmers, which has increased
significantly post the two years of rain deficit.
Focus on the quality of agri-inputs
Apart from the supporting infrastructure discussed
earlier, seeds, fertilisers and agrochemicals are key
inputs in agriculture. Their quality and quantity
directly impact crop yields. During the previous green revolution, the focus
was on usage of high-yielding seeds and effective
usage of fertilisers.
Seeds
Seeds are a key product in agri-inputs. Due to lack
of awareness and financial support, the share of
quality seeds is still low vs. the farm saved seeds.
Quality seeds usage is <20% in pulses and <30% in
paddy and wheat.
Currently, there are institutions (public, private
and universities) that are involved in the
development of high-yielding crops.
So far, technology has been successful adopted in
cotton (BT). Hybrids in maize, vegetables, fruits,
and rice are also gaining traction.
The government is implementing initiatives to
increase the usage of quality seeds. Policy is made
for 100% FDI under the automatic route. There is athrust on creating a seed bank.
There is need for a mechanism that offers financial
support to marginal farmers. Since hybrid seeds
are costlier, they aren’t very frequently.
A strict regulatory framework should be in place to
restrict the sale of spurious seeds. Companies
should be held accountable for poor performance
of seeds.
Transparent and quick relief
against natural disasters will
prevent distress among farmers
Jan Dhan Yojana and the crop
insurance scheme can be game
changers for Indian agriculture
Seeds are the best and easiest
way to incorporate technology
in agriculture
Awareness, financial support
and strict regulation againstspurious seeds are key factors
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Fertilisers
The usage of fertilisers was given significant
importance during the Green Revolution. The
average consumption of fertilisers in India rose
from ~106 kg/ha in 2005-06 to ~128 kg/ha in
2012-13.
However, the usage in India is still below its
neighbouring countries. Pakistan consumes 205
kg/ha whereas China uses 396 kg/ha.
A balanced usage of nutrients is important, along
with higher usage of fertilisers. The optimal level
of fertiliser use depends on the soil, crop and
water availability.
Lower price of urea vs. complex fertilisers resulted
in higher usage of nitrogen nutrient compared to
phosphorous and potash. An unbalanced usage of
fertilisers is leading to lower yields.
Government initiative: A soil health card scheme has been initiated to give farmers information
about the nutrient level of the soil. This will help
them make judicious use of fertilisers. The target
is to cover all 14cr farm holdings by March 2017.
The government has budgeted Rs 3.7bn for this
project.
Agrochemicals
Agrochemicals have received the least attention
from the government.
It is estimated that crop losses in India owing to
pests are as high as 15% to 25%. If these losses are
avoided, India will be able to meet its needs for
2020 domestically (source: GOI reports).
The usage of agrochemicals is quite low in India
compared to other countries. This is also
considered as one of the key reasons for lower
crop yields.
Agrochemical Usage Vs. YieldsCountry Pesticide uses (kg/ha) Yield (Tons/ha)
UK 5.0 7.0
France 5.0 7.5
USA 7.0 7.0
China 13.0 6.5
India 0.6 3.0
World 3.0 3.0
Source: FICCI Agricultural Census, Analysis by Tata Strategic
While consumption is low in India, pesticide
residues have been found to be too high.
This is mainly because of a huge spurious market
and the use of more dangerous chemicals.Developed countries have shifted to safer
chemicals such as organophosphates and
pyrethroids, whereas India still uses hazardous
organochloride formulations.
Soil health card will lead to a
judicious use of fertilisers in
India
Lower pesticide usage is one of
the key reasons for lower yieldsin India
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AGROCHEMICALS : SECTOR REPORT
Inadequate access to latest technologies such as
low drift nozzle and spray shields is also leading to
lower efficiency. It is estimated that currently only
0.1% of the applied pesticide in Indian farms hits
the target with the remainder contaminating the
soil and water (source: GOI reports).
Indian farmers also lack information related to
agrochemicals. The Central Insecticide Board and
Registration Committee (CIBRC) regulate pesticide
use in India. However, farmers are often unaware
of the pesticides recommendations.
Use of bio-pesticides has not been popularised
and constitute only ~4% of the total pesticide
market in India.
Despite having the second-largest arable land,agrochemicals consumption is very less in the
country.
Agro-chemical Market Size In Major Countries
Country 2008 (US$ bn) 2013 (US$ bn) CAGR (%)
Brazil 5.9 10.0 11.0
USA 6.6 7.4 2.3
China 3.2 4.8 8.6
Japan 3.2 3.4 1.3
France 3.2 2.9 (2.5)Germany 2.0 2.1 1.0
Canada 1.3 2.0 8.2
Argentina 1.0 1.7 11.2
India 1.4 1.7 3.8
Italy 1.2 1.3 2.1
Australia 1.1 1.1 (0.6)
Source: Sumitomo annual report
Awareness among farmers, better availability of
products and rising farm incomes will lead to a
higher usage of agrochemicals.
The Indian crop protection industry is estimated at
~US$ 4.25bn, which is divided between domestic
and exports. It is expected to grow at 12% CAGR to
reach ~US$ 7.5bn by FY19 (source: Tata Strategic
Group, FICCI).
Indian Crop Protection Market (US$ bn)FY14 FY19E CAGR (%)
Export 2.0 4.2 16.0
Domestic 2.3 3.3 8.0
Total 4.3 7.5 12.0
Source: Tata strategic group, FICCI
Exports will grow at 16% CAGR. Indian players are
well placed, with the right skill set available at a
lower cost and growing outsourcing by MNCs.
Global innovators serious about India
Global majors want to expand their products in
India owing to an immense scope for increase in
penetration.
What they have to say
Chemtura: “In India, we intend to continue to
invest in order to expand our portfolio of
businesses in the region.”
Dupont: “Over the next 5 years, we anticipate thatover half our sales growth in the agriculture
segment will occur outside North America and
focused in key markets of Brazil, Russia, Ukraine,
India and China.”
FMC: “With the acquisition of Cheminova, we are
expanding our international sales, particularly in
Europe and key Asian countries such as India.”
Lack of awareness and lower
share of cash crops have
resulted in minimal usage of
agrochemicals in India
India and Latin America are two
growing markets. Global
innovators are keen to
participate in India
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AGROCHEMICALS : SECTOR REPORT
India players’ strategies
The Indian domestic agrochemical market is
growing fast, led by lower penetration, new
efficient products and farmers shifting towards
cash crops.
Generic products earlier dominated the market.
However, seeing the vast
opportunity, global innovators are entering India
through marketing tie-ups with local players.
Key Indian players have adopted different
strategies.
Differentiated Approach By India Players
Company Key Strategies
Bayer Crop science Best product portfolio owing to strong parent. Pioneer in launching new products
Rallis India One-stop solution for farmers. Products across both generic and licensed category
UPL Diversification across multiple countries. Shift from pure generic to branded company
PI Industries Focus on high-end CSM business. Specialty product approach in domestic market
Dhanuka Agritech Only into formulation. Specialty product portfolio with tie-ups with global innovators
Insecticide India Portfolio of fast-growing generic products. Focus on bio-pesticide and R&D
Source: Company, HDFC sec Inst Research
Impact of monsoon on Indian players
Like other agri-inputs, consumption of
agrochemicals is also dependent on monsoon.
Being at the end of value chain (after seeds and
fertilisers), farmers prefer to cut cost in usage of
agrochemicals during tough years.
Outlook for agrochemicals is robust if monsoon
remains normal.
Revenues Growth (%) Of Indian Agrochemical Players
Company FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 9MFY16Dhanuka Agritech 259.9 23.8 35.6 21.1 20.5 7.8 10.0 26.8 6.3 3.1
Insecticides India 37.4 17.4 33.4 43.3 19.3 15.9 18.2 40.1 11.6 0.8
PI Industries1 17.6 22.0 9.6 2.1 42.5 3.6 12.3 20.0 19.5 3.3
Rallis India2 14.0 13.4 (9.4) 26.5 15.6 5.1 19.0 20.9 5.3 (14.6)
UPL3 15.8 21.8 28.9 16.0 24.7 15.1 5.0 24.4 16.8 2.8
Cumulative Rainfall* 106 98 78 102 102 93 106 106 88 86
Source: IMD, Company, HDFC sec Inst Research *Cumulative Rainfall (Jun - Sep) (LPA) (%)
1 - PI Industries: Only domestic agri-inputs division revenues are considered. CSM revenues are not included.
2 - Rallis India: Only domestic revenues are considered. These are ~70% of total revenue.3 - UPL: Only Indian revenues are considered
Indian players have a huge
opportunity both in domestic as
well as export markets
All key players are focusing on
launching specialty products
with tie-ups with global
innovators
Agrochemicals market growth is
directly linked to monsoon
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INITIATING COVERAGE 13 MAY 2016
Dhanuka Agritech
BUY
On the road less travelledDhanuka Agritech Ltd (DAL) has a unique business
model with (1) Focus on in-licensing speciality
molecules, (2) Tie-ups with global innovators, (3)Regular launches of new products, preferably in the
fast-growing herbicide/fungicide segments, (4)
Presence only in asset-light formulation business,and (5) Pan-India distribution network with added
initiatives such as ‘Dhanuka Doctors’ to spread
awareness among farmers.
DAL has developed a strategic partnership with eightglobal innovators across Japan and the US. The
sourcing of new exclusive products has resulted in
the share of high-margin high-growth specialtymolecules rising to ~75% by FY15. The company
aspires to launch 2-3 new products (in 9(3) category)
every year to maintain its growth momentum.
DAL adopted the asset-light only formulationapproach, as it requires less incremental capex to
launch new products. It has spent Rs 1.2bn in adding
capacities over the past five years. We see no majorcapex over the next 2-3 years even for revenue CAGR
of ~20%.
DAL has strengthened its marketing network to
achieve full benefits of tie-ups with MNCs and newlaunches. The number of distributors (~9k) and
Dhanuka Doctors (~1.5k) has doubled over the past
seven years.
A differentiated approach has worked in the
company’s favour. It has achieved revenues CAGR of31% and EBITDA CAGR of ~38% over FY05-15. The
balance sheet is debt-fee despite a distressed agri
situation (owing to two bad monsoons) and recent
capex of Rs 600mn (to be commissioned in FY17).
A strong product portfolio and new launches willlead to robust growth. A healthy balance sheet and
improving return ratios will command premium. At
CMP, the stock is trading at 18.0x FY18E EPS and 4.4xBV. We initiate coverage on Dhanuka Agritech with a
BUY rating and a TP of Rs 700/sh (20x FY18E EPS).
Robust financials: We expect revenues and PAT togrow at a CAGR of 23% and 34% over FY16-18E.
RoE and RoCE will grow to 26.9/26.1% in FY18E vs.
21.6/20.3% in FY16E.
Near-term outlook: FY16 was challenging for
agrochemical players owing to the second
consecutive year of bad monsoon. DAL’s share
price moved up ~20% in the past three months in
anticipation of good rains. Any disappointment
related to monsoon is a big risk for all agri-inputcompanies.
Financial Summary (Standalone)(Rs bn) FY14 FY15 FY16E FY17E FY18E
Net Sales 7,369 7,838 8,308 10,219 12,524
EBITDA 1,206 1,317 1,406 1,911 2,524
APAT 920 1,059 978 1,318 1,750
Diluted EPS (Rs) 18.4 21.2 19.5 26.4 35.0
P/E (x) 34.2 29.8 32.2 23.9 18.0
EV / EBITDA (x) 26.4 23.7 22.2 16.2 12.1
RoE (%) 30.9 28.4 21.8 24.6 26.9Source: Company, HDFC sec Inst Research
INDUSTRY AGROCHEMICAL
CMP (as on 13 May 2016) Rs 630
Target Price Rs 700
Nifty 7,815
Sensex 25,490
KEY STOCK DATA
Bloomberg DAGRI IN
No. of Shares (mn) 50
MCap (Rs bn) / ($ mn) 32/472
6m avg traded value (Rs mn) 8
STOCK PERFORMANCE (%)
52 Week high / low Rs 718/408
3M 6M 12M
Absolute (%) 20.5 45.9 6.1
Relative (%) 9.6 46.4 12.5
SHAREHOLDING PATTERN (%)
Promoters 74.99
FIs & Local MFs 6.52FIIs 0
Public & Others 18.49
Source : BSE
Satish Mishra
satish.mishra@hdfcsec.com
+91-22-6171-7334
Deepak Kolhe
deepak.kolhe@hdfcsec.com+91-22-6171-7316
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
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DHANUKA AGRITECH : INITIATING COVERAGE
DAL’s performance over the past 15 years
Dhanuka Agritech Ltd (DAL) is engaged in the
formulation of a wide range of agrochemicals.
DAL’s revenues have grown ~30x over the past 15
years. In the chart below, we have summarised its
journey over three phases and the key triggers.
DAL enjoys pan-India presence through its
marketing and has a network of more than 8,600
distributors and over 80,000 retailers.
The strong performance was led by multiple
factors such as increasing focus on distribution
network, tie-ups with global innovators and focuson in-licensing product where margins are higher.
Stellar Performance Led By Multiple Factors
Source: Capitaline, Company, HDFC sec Inst Research (*Deficit more than 10%)
FY02 to FY06 FY07 to FY13 FY14 to FY18E Focus on in-licensing products and
increase in tie-ups with global
innovators.
Blockbuster product ‘Targa Super’
was sourced from Nissan Chemical,
Japan.
Hit by two years of rain deficit in
2002 and 2004.
Products launched during FY01-FY06
started contributing to topline.
Escalation in raw material prices pushed
up realisation of many products.
Focus on fast-growing herbicides. Built
strong product portfolio.
Govt support with reduction in excise
duty from 14% to 8%
EBITDA margins improved owing to
higher contribution from in-licensingproducts.
Two consecutive rain deficits (2014
and 2015) impacted the sector.
Introduction of new 9(3) products.
Rising share of revenues from newly
launched products and hence,
gradual increase in margins.
DAL enjoyed 6% of the domestic
agrochemicals market share.
New plant at Rajasthan to support
future growth.
DAL’s revenues have grown ~30x
over the past 15 years
The company has built a
network of more than 8.5k
distributors and over 75kretailers across India
Tie-up with global innovators
and launches of specialty
products were key strategies
0%
5%
10%
15%
20%
25%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
F Y 0 2
F Y 0 3
F Y 0 4
F Y 0 5
F Y 0 6
F Y 0 7
F Y 0 8
F Y 0 9
F Y 1 0
F Y 1 1
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6 E
F Y 1 7 E
F Y 1 8 E
Revenues (Rs mn) (LHS) EBITDA (Rs mn) (LHS) EBITDA margins (%) (RHS)
2 years rain deficit1 years rain deficit
2 years deficit
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DHANUKA AGRITECH: INITIATING COVERAGE
Asset-light business model
Dhanuka Agritech’s asset-light business model
differentiates it from peers. The company focuses
only on formulation and sources technical directly
from innovators or other manufacturers. Three
factors support this model: (1) A better productmix, (2) Strong marketing network, and (3) Good
relationship with innovators.
Fast-growing product mix
DAL’s product portfolio is concentrated towards
fast-growing herbicides, while that of the domestic
industry is towards insecticides. Herbicide is
growing at a rapid pace owing to the rising manual
labour cost in India. Globally, it is the biggest
category.
Crop Protection Industry As Per Category (%)
Source: UPL AR, Company, HDFC sec Inst Research
DAL’s revenue contribution from herbicide and
fungicide category has gone up from 23% and 13% in
FY08 to 30% and 16% in FY15.
DAL’s revenue mixRevenue (%) Insecticide Herbicide Fungicide Others
FY08 57 23 13 8FY15 43 30 16 11
Source: Company, HDFC sec Inst Research
DAL’s ‘Targa Super’ is the market leader in
herbicide for soybean. It was launched in 2001 in
collaboration with Nissan (Japan). The recent
launches have been mostly in the herbicide and
fungicide categories.
New Product Launched In Herbicide And Fungicide
Product Category Crop Year
Conika Fungicides Paddy FY16
Dozo Herbicides Cottons FY16
Sempra Herbicides Sugarcane, maize FY15
Sakura Herbicides Soyabean FY15
Oxykill Herbicide Rice, Onion, FY15
Protocol Fungicides Chilli, rice, grapes, tomato FY15
Source: Company, HDFC sec Inst Research
Strong marketing network
DAL has a pan-India marketing network with more
than 8,600 direct distributors and over 80,000retailers. A strong marketing network will lead to
(1) Increased brand awareness, (2) Strong product
reach, (3) Interest from global innovators, and (4)
Competitive advantage. The company doubled its
distributors between FY08 and FY14.
65%
22%
43%
15%
27%
16%
16%
44% 30%
4% 7% 11%
0%
20%
40%
60%
80%
100%
India Global Dhanuka
Insecticide Fungicide Herbicide Other
Unlike the technical business,
only the formulation model
requires less incremental capex
for launching new product
DAL is focusing on fast-growing
herbicides, whereas the industry
is concentrated towardsinsecticides
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DHANUKA AGRITECH : INITIATING COVERAGE
Strong Marketing Network In India
Marketing Network FY08 FY14 FY15
Revenues (Rs mn) 2,482 7,384 7,851
Total Distributors 4,000 8,000 8,600
Districts covered 450 600 600
Dhanuka Doctors 750 1,500 1,500Retail counters 75,000 80,000
Source: Company, HDFC sec Inst Research
Technical collaboration with global leaders
DAL has strong technical tie-ups with global
innovators. Currently, the company is sourcing
specialty molecules from four American and
Japanese companies each. As part of these
collaborations, DAL gets access to better products
and saves on R&D costs, while the innovators gainentry to India’s fast-growing agrochemical market
and access to DAL’s marketing network.
Strong Relationship With Global InnovatorsTie up
withCountry Products
Nissan Japan Targa Super, Sempra, Sakura,
Dupont USQurin, HOOK, Cursor, Hi-Dice, DUNET,
Cover, Lustre, Dhawa gold
Chemtura US Omite, Dimline, Vitavaxulta,
Sumitomo Japan CALDAN 4 G, SheathmarFMC US MARKAR, AAATANK, Brigade, Nabood
Dow US ONEUP, TARGA SUPER + ZARGON,
Mitsui Japan Bombard, Nukil,
Hokko Japan Kasu-B, Conika
Source: Company, HDFC sec Inst Research
Regular introduction of new molecules
DAL has introduced 16 new products in the past
three years. Of this, six are registered under 9(3)
and 10 under 9(4). The revenue share of the new
products improved to 20% in 9mFY16 compared to
15% in 9mFY15.
Two consecutive years of rain deficit impacted the
growth of these products. We believe Sempra,
Conika, Mortar and Sakura have huge growth
potential in the near future and a normal
monsoon will lead to better demand.
Products Launched In Past 2-3 Years
Product Type Categ. Crop Launch
Thiram 9(4) Fung FY16
Goldy 9(4) Fung Potato, grapes FY16
Conika 9(3) Fung Paddy FY16
Cover 9(3) Insec
Soyabean, Black
gram, sugarcane,
Paddy
FY16
Dozo 9(3) Herb Cottons FY16
Dhanvarsha PGR FY16
Sempra 9(3) Herb Sugarcane, maize FY15
Mortar 9(3) InsecPaddy and
vegetableFY15
Sakura 9(3) Herb Soyabean FY15
Pager 9(4) Insec FY15
Oxykill 9(4) Herb Rice, onion FY15
Jackal 9(4) Insec FY14
Defend, 9(4) InsecPaddy, grapes,
chilly, horticultureFY14
Danfuron 9(4) InsecBrinjal, chilli, okra,
tomatoFY14
Source: Company, HDFC sec Inst Research
DAL has a pan-India marketing
network with over 8,600 direct
distributors and over 80,000
retailers
Currently, the company is
sourcing specialty molecules
from four American and four
Japanese companies
DAL has introduced 16 new
products in the past three years
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DHANUKA AGRITECH : INITIATING COVERAGE
Rising share of specialty molecules
The introduction of new products has led to a
gradual increase in the share of the high-margin
specialty segment.
Specialty And Generic Revenues Contribution
Source: Company, HDFC sec Inst Research
Decreasing Product concentration
As of FY12, the top-5 products contributed ~41%
to revenues (Targa super 20%, Caldan 10%,
Markar 4%, Omite 4% and Dhanzyme 3%). Rising
contribution from new products has, however, led
to a decline in the top-5’s share to 25-28%. The
contribution from products launched in the past
three years increased to 20% in 9mFY16 as
compared to 15% in 9mFY15.
Top-5 Products’ Contribution
Products Category Revenues share
Targa super Herbicide
25-28%
Caldan Insecticide
Markar Insecticide
Dhanzyme Granules Organic manure
Omite Insecticide
Source: Company, HDFC sec Inst Research
Robust growth potential for new products
The penetration of crop protection chemicals in
India is below 30%. Therefore, new products have
a huge potential.
Addressable area for new products
A bigger opportunity in crops such as cotton,
maize, sugarcane and paddy, where sowing area is
huge.
Mortar, Sakura and Sempra will be major
contributors to revenues.
Product Type CropAddressable
area (k acre)
Area
tapped*
Conika Fung Pomegranate 244 73
Conika Fung Tomato 1,072 73
Conika Fung Cole Crops 1,199 97
Mortar Insec Paddy 108,600 1,700
Mortar Insec Tomato 2,100 400
Mortar Insec Cole Crops 2,000 140
Sempra Herbi Sugarcane 12,025 317
Sempra Herbi Maize 17,675 106
Sakura Herbi Cotton 28,882 693
Sakura Herbi Onion 2,970 583
Sakura Herbi Jute 2,540 83
Source: Company, HDFC sec Inst Research,*‘000 acres
We have analysed the huge revenue potential for a
few new products.
Contributions from products
launched in the past three years
increased to 20% in 9mFY16 vs.
15% in 9mFY15
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
FY11 FY12 FY13 FY14 FY15 FY16
Speciality (%) Generic (%)
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DHANUKA AGRITECH : INITIATING COVERAGE
Revenue potential from Sempra
Sempra was launched in FY15 for sugarcane and
maize to control cyprus weed. It is the only
product in the world with the ability to do so. This
product has the potential to achieve revenue of
more than Rs 3bn.
Sempra Potential In Sugarcane
Total Area Under Sugarcane (mn ha) 5.2
Addressable Area For Sempra (mn ha) 1.6
Assuming Addressable Area For Sempra (%) 30.0
Usage Area In Sugarcane For Sempra (mn ha) 0.39
Assum: Area Tapped Of The Addressable Area (%) 25.0
Usage amount (Rs/ ha) 5,000
Total Sales (Rs mn) 1,961
Source: Company, HDFC sec Inst Research
The area under maize is ~9.4mn hectares
compared to ~5.2mn hectares in sugarcane. Even
at a lower penetration, it offers a huge
opportunity.
Sempra potential in Maize
Total Area Under Maize (mn ha) 9.4
Addressable Area For Sempra (mn ha) 2.8Assuming Addressable Area For Sempra (%) 30
Usage Area In Maize For Sempra (mn ha) 0.28
Assum: Area Tapped Of The Addressable Area (%) 10
Usage Amount (Rs/ha) 5,000
Total Sales (Rs mn) 1,410
Source: Company, HDFC sec Inst Research
No major capex going forward
The company has spent more than ~Rs 1.2bn on
capacity expansion in the past five years. Earlier, it
had formulation units at Gurgaon, Udhampur and
Sanand. DAL will almost double its capacity with
the new manufacturing facility in Rajasthan, whichwill commence from FY17.
Strong free cash flow generation
The company has already incurred a major capex
for its growth. We believe it will require only Rs
50-100mn per year towards maintenance capex.
Net debt/equity remains zero even at the peak of
its capex despite poor rains. We expect net debt
to remain zero over FY15-FY18E.
We expect the company to generate CFO of ~Rs
700mn/year and free cash flow of ~Rs 500mn/year
over FY17E-18E.
Healthy Cash Generation And No Capex To Boost FCF
Source: Company, HDFC sec Inst Research
(400)
(200)
-
200400
600
800
1,000
(500)
-
500
1,000
1,500
F Y 1 1
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6 E
F Y 1 7 E
F Y 1 8 E
Capex (LHS) FCO (LHS) FCF (RHS)
Rs mn
The penetration of crop
protection chemicals in India isbelow 30%. Therefore, new
products have a huge potential
DAL has spent more than ~Rs
1.2bn on capacity expansion inthe past five years. No major
capex likely in 2-3 years
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DHANUKA AGRITECH : INITIATING COVERAGE
How a differentiated model helped DAL
Higher assets turnover ratio: Dhanuka has asset
turnover ratio ~2x as of FY15.
Source: Company, HDFC sec Inst Research
PBT margins: Lower depreciation and interest cost
as compared to peer leads to better PBT margins
Source: Company, HDFC sec Inst Research
Strong return ratios: Healthy asset turnover and
higher margins has resulted in strong return
rations for Dhanuka Agritech.
ROE Comparison
Source: Company, HDFC sec Inst Research
ROCE Comparison
Source: Company, HDFC sec Inst Research
-
0.5
1.0
1.5
2.0
2.5
FY11 FY12 FY13 FY14 FY15
Dha nuka PI Indus try R al li s Indi a U PL Ins ecti ci de Indi a
x
-
5.0
10.0
15.0
20.0
FY11 FY12 FY13 FY14 FY15
Dha nuka PI Indus try R all is India U PL Ins ecti ci de Indi a
%
-
10.0
20.0
30.0
40.0
FY11 FY12 FY13 FY14 FY15
Dhanuka PI Indus try R al li s Indi a U PL Ins ecti ci de Indi a
%
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
FY11 FY12 FY13 FY14 FY15
Dha nuka PI Indus try R al li s Indi a U PL Ins ecti ci de India
%
DAL has the highest fixed asset
turnover ratio owing to its formulation model
Lower depreciation and interest
cost resulted in better PBT
margins for DAL
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DHANUKA AGRITECH : INITIATING COVERAGE
Concerns on high WC cycle is over stretched
Dhanuka’s cash conversion cycle is around 150-
170 days. This is the highest among agrochemical
players. However, looking deeper, the difference is
mainly on account of lower payable days.
Debtor and inventory days for DAL are comparableto the industry. Since the company enjoys debt-
free status, it buys most of the raw materials in
discount while paying in cash.
Working capital cycle as on FY15
Particulars (Days) UPL PI Ind. Rallis Dhanuka
Inventory 89 71 79 89
Debtor 111 72 50 90
Payables 97 67 58 29
Cash conversion cycle 103 77 71 150
Source: Company, HDFC sec Inst Research
Expansion in CRAM business on the cards
In 3QFY16, the management indicated some
interest in the CRAMs business. DAL’s relationship
with global innovator companies could help
expand the business. Although this may not
happen in the near future, we believe thisinitiative will strengthen the company’s position
from formulation to CRAMs manufacturer.
Risks
Monsoon: Indian agriculture is dependent on
monsoon, with only ~46% of arable land irrigated.
Dependency on global suppliers: DAL is engaged
in the business of formulation rather than
technical. Therefore, the company is dependent
on global innovators.
Changes in regulation: Product registration is a
time-consuming process. Any changes in
regulation could impact product launches.
Dhanuka’s cash conversion cycle
is the highest among peers.However, it is mainly on account
of lower payables. Being debt-
free, DAL prefers discount to
extended payable period
The management has indicated
interest in the CRAMs business
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DHANUKA AGRITECH : INITIATING COVERAGE
Assumptions
Assumption FY12 FY13 FY14 FY15 FY16E FY17E FY18E
Specialty 4,136 4,643 6,041 6,495 7,340 9,175 11,469
% Change 9.4 12.2 30.1 7.5 13.0 25.0 25.0
% Of Revenues 72.0 72.0 73.0 75.0 80.0 81.3 82.9
Generic 1,609 1,805 2,234 2,165 1,840 2,116 2,370
% Change (0.7) 12.2 23.8 (3.1) (15.0) 15.0 12.0
% Of Revenues 28.0 28.0 27.0 25.0 20.0 18.7 17.1
Gross Margins Total (%) 35.3 34.6 37.7 37.3 37.8 38.1 38.3
Specialty Margins (%) 40.0 40.0 40.0
Generic Margins (%) 29.0 30.0 30.0
Source: Company, HDFC sec Inst Research
Peer Valuations
Mcap
(Rs bn)
CMP
(Rs/sh) Rating
TP
(Rs/sh)
EPS (Rs/sh) P/E (x) P/BV (x) ROE (%)
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Chambal Fert 27.6 66 BUY 76 9.9 8.9 9.5 6.7 7.5 7.0 1.2 1.0 0.9 17.8 14.7 14.1
Coromandel Int 63.7 225 BUY 260 11.8 15.9 21.7 19.0 14.2 10.4 2.7 2.4 2.1 14.9 18.0 21.7
Dhanuka Agritech 31.5 630 BUY 700 19.5 26.4 35.0 32.2 23.9 18.0 6.5 5.4 4.4 21.8 24.6 26.9
Insecticides India 9.1 441 BUY 535 19.5 25.9 33.4 22.7 17.0 13.2 2.7 2.4 2.0 12.9 15.0 16.7
PI Industries 85.5 626 BUY 680 20.1 25.0 31.1 31.1 25.1 20.1 7.6 6.1 4.9 27.3 27.1 27.0
Rallis India 40.5 209 BUY 250 7.4 9.8 12.5 28.3 21.3 16.6 4.5 4.0 3.5 16.7 19.9 22.3
UPL Ltd 250.2 584 BUY 625 31.8 35.3 43.5 18.4 16.5 13.4 3.7 3.1 2.6 21.6 20.5 21.3
Navin Fluorine 20.6 2,105 BUY 2,150 85.5 99.7 134.4 24.6 21.1 15.7 3.2 2.9 2.5 13.5 14.3 17.2
SRF Ltd 72.4 1,261 NEU 1,330 73.7 86.5 95.0 17.1 14.6 13.3 2.7 2.3 2.0 17.0 17.3 16.5
Source : Company, HDFC sec Inst Research
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DHANUKA AGRITECH : INITIATING COVERAGE
Income Statement (Standalone)
(Rs mn) FY14 FY15 FY16E FY17E FY18E
Net Revenues 7,369 7,838 8,308 10,219 12,524
Growth (%) 26.9 6.4 6.0 23.0 22.6
Material Expenses 4,270 4,485 4,344 5,308 6,483
Traded Goods 327 436 832 1,023 1,254Employee Expenses 580 648 725 834 959
Other Operating Expenses 1,001 965 1,014 1,155 1,317
Operating Profits 1,191 1,304 1,393 1,898 2,511
Operating Profit Margin (%) 16.2 16.6 16.8 18.6 20.0
Other Operating Income 15 13 13 13 13
EBITDA 1,206 1,317 1,406 1,911 2,524
EBITDA Margin (%) 16.3 16.8 16.9 18.7 20.1
EBIDTA Growth (%) 47.2 9.3 6.8 35.9 32.0
Depreciation 48 59 62 90 94
EBIT 1,157 1,259 1,344 1,822 2,429Other Income (Including EO Items) 48 61 47 48 52
Interest & Financial charges 42 26 14 - -
PBT 1,163 1,294 1,377 1,870 2,482
Tax 232 233 399 552 732
RPAT 931 1,061 978 1,318 1,750
EO (Loss) / Profit (Net Of Tax) 11.2 2.0 0.0 0.0 0.0
APAT 920 1,059 978 1,318 1,750
APAT Growth (%) 44.7 15.1 (7.7) 34.8 32.7
AEPS 18.4 21.2 19.5 26.4 35.0
EPS Growth (%) 44.7 15.1 (7.7) 34.8 32.7
Source: Company, HDFC sec Inst Research
Balance Sheet (Standalone)
(Rs mn) FY14 FY15 FY16E FY17E FY18E
SOURCES OF FUNDS
Share Capital 100 100 100 100 100
Reserves 3,225 4,023 4,755 5,741 7,051
Total Shareholders Funds 3,325 4,123 4,855 5,841 7,151Minority Interest - - - - -
Long-term Debt - - - - -
Short-term Debt 394 161 175 - -
Total Debt 394 161 175 - -
Long-term Provisions & Others 153 174 174 174 174
Net Deferred Taxes 36 34 34 34 34
TOTAL SOURCES OF FUNDS 3,909 4,492 5,238 6,049 7,359
APPLICATION OF FUNDS
Net Block 671 702 1,389 1,400 1,405
CWIP 223 385 35 35 35Investments 10 51 151 151 151
LT Loans & Advances 201 303 303 303 303
Other Non-current Assets 3 3 9 9 9
Total Non-current Assets 1,106 1,444 1,887 1,897 1,903
Inventories 2,113 1,917 2,052 2,523 3,091
Debtors 1,703 1,939 2,166 2,523 3,091
Other Current Assets 227 184 184 184 184
Cash & Equivalents 23 457 435 560 910
Total Current Assets 4,067 4,496 4,837 5,790 7,277
Creditors 482 622 661 813 996
Other Current Liabilities & Provns 783 825 825 825 825
Total Current Liabilities 1,264 1,448 1,486 1,638 1,821
Net Current Assets 2,802 3,048 3,351 4,152 5,456
TOTAL APPLICATION OF FUNDS 3,909 4,492 5,238 6,049 7,359
Source: Company, HDFC sec Inst Research
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DHANUKA AGRITECH : INITIATING COVERAGE
Cash Flow (Standalone)
(Rs mn) FY14 FY15 FY16E FY17E FY18E
Reported PBT 1,163 1,294 1,377 1,870 2,482
Non-operating & EO items (48) (61) (47) (48) (52)
Interest expenses 42 26 14 - -
Depreciation 48 59 62 90 94Working Capital Change (659) (38) (330) (676) (954)
Tax Paid (224) (234) (399) (552) (732)
OPERATING CASH FLOW ( a ) 322 1,045 677 683 838
Capex (288) (253) (400) (100) (100)
Free cash flow (FCF) 34 792 277 583 738
Investments (10) (41) (100) - -
Non-operating Income 59 63 47 48 52
INVESTING CASH FLOW ( b ) (239) (231) (453) (52) (48)
Debt Issuance/(Repaid) 64 (237) 14 (175) -
Interest Expenses (42) (26) (14) - -FCFE 57 529 277 408 738
Share Capital Issuance - - - - -
Dividend (193) (117) (246) (332) (440)
FINANCING CASH FLOW ( c ) (170) (380) (246) (507) (440)
NET CASH FLOW (a+b+c) (87) 434 (21) 125 350
EO Items, Others 11 2 - - -
Closing Cash & Equivalents 23 457 435 560 910
Source: Company, HDFC sec Inst Research
Key RatiosFY14 FY15 FY16E FY17E FY18E
PROFITABILITY (%)
GPM 37.7 37.3 37.8 38.1 38.3
EBITDA Margin 16.3 16.8 16.9 18.7 20.1
EBIT Margin 15.7 16.0 16.2 17.8 19.4
APAT Margin 12.5 13.5 11.7 12.9 14.0RoE 30.9 28.4 21.8 24.6 26.9
Core RoCE 26.6 26.0 21.6 25.0 28.7
RoCE 27.1 25.7 20.3 23.4 26.1
EFFICIENCY
Tax Rate (%) 19.9 18.0 29.0 29.5 29.5
Asset Turnover (x) 2.1 1.9 1.7 1.8 1.9
Inventory (days) 104 89 90 90 90
Debtors (days) 84 90 95 90 90
Other Current Assets (days) 2 1 1 1 1
Payables (days) 24 29 29 29 29Other Current Liab & Provns (days) 39 38 36 29 24
Cash Conversion Cycle (days) 128 113 121 122 128
Debt/EBITDA (x) 0.3 0.1 0.1 0.0 0.0
Net D/E (x) 0.1 (0.1) (0.1) (0.1) (0.1)
Interest Coverage (x) 27.8 48.4 96 NA NA
PER SHARE DATA (Rs)
EPS 18.4 21.2 19.5 26.4 35.0
CEPS 19.4 22.3 20.8 28.1 36.9
DPS 4.0 4.5 4.2 5.7 7.5
BV 66.5 82.4 97.1 116.8 143.0
VALUATION
P/E (x) 34.2 29.8 32.2 23.9 18.0
P/BV (x) 9.5 7.6 6.5 5.4 4.4
EV/EBITDA (x) 26.4 23.7 22.2 16.2 12.1
OCF/EV (%) 1.0 3.3 2.2 2.2 2.7
FCF/EV (%) 0.1 2.5 0.9 1.9 2.4
FCFE/MCAP (%) 0.2 1.7 0.9 1.3 2.3
Dividend Yield (%) 0.6 0.7 0.7 0.9 1.2
Source: Company, HDFC sec Inst Research
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INITIATING COVERAGE 13 MAY 2016
Insecticides IndiaBUY
Ready to growInsecticides India Ltd (IIL) is a fast-growing Indianagrochemical player present across branded
formulation and the technical business. It has built a
strong product portfolio through reverseengineering, inorganic acquisitions and tie-ups with
global innovators.
IIL’s product portfolio comprises ~100 branded
products and ~20 technicals. To increase its focus on
high-growth and high-margin products, IIL hascategorised the top-20 branded products asNavratna and Super-11. The top-20 products
contribute ~70% to formulation revenues (~50% to
total revenues) and have grown at ~30% CAGR overFY12-15.
The company has product tie-ups with global players
such as AMVAC (US) and Nissan (Japan). Twoproducts from each partner are part of the top-20. IIL
has formed a 50-50 JV with OAT Agrio (Japan) to
capitalise on molecules going off-patent (worth US$6.3bn) during 2014-2020. The total investment by theJV, which aims to discover new molecules, will be
~Rs 400mn.
IIL has invested ~Rs 2.5bn over the past five years to
enhance its capacities as the current ones operates
at sub-50% utilisation level. We see no major capexover the next 2-3 years even for revenue CAGR of
~20%. The company has a pan-India distribution
network and has increased it distributors to 5,000 inFY15 vs. 3,200 in FY12.
IIL’s capex phase is over and it has partly reduced itsdebt by raising Rs 838mn through QIP (Aug-15 Rs
510/sh). Cash generation and no further capex will
improve the balance sheet. At CMP, the stock tradesat 13.2x FY18E EPS and 2.0x BV. We initiate coverage
on Insecticides India with a BUY rating and a TP of Rs
535/sh (16x FY18E EPS).
Highlights of the quarter
Robust financials: We expect revenues and PAT togrow at 16% and 31% CAGR over FY16-18E. RoE
and RoCE will grow to 16.7/13.2% in FY18E vs.
12.9/10.4% in FY16E.
Near-term outlook: FY16 was challenging for agri-
input players owing to a bad monsoon. IIL’s share
prices have moved up ~34% in the past three
months in anticipation of good rains. Any
disappointment is a big risk for all agri-input
companies.
Financial Summary (Standalone)
(Rs bn) FY14 FY15 FY16E FY17E FY18E
Net Sales 8,641 9,642 9,785 11,315 13,139
EBITDA 818 1,111 962 1,127 1,286
APAT 400 548 402 535 691
Diluted EPS (Rs) 19.3 26.5 19.5 25.9 33.4
P/E (x) 22.8 16.6 22.7 17.0 13.2
EV / EBITDA (x) 9.9 7.9 12.5 10.5 8.8
RoE (%) 17.4 20.4 12.9 15.0 16.7Source: Company, HDFC sec Inst Research
INDUSTRY AGROCHEMICAL
CMP (as on 13 May 2016) Rs 441
Target Price Rs 535
Nifty 7,815
Sensex 25,490
KEY STOCK DATA
Bloomberg INST IN
No. of Shares (mn) 21
MCap (Rs bn) / ($ mn) 9/137
6m avg traded value (Rs mn) 14
STOCK PERFORMANCE (%)
52 Week high / low Rs 605/295
3M 6M 12M
Absolute (%) 47.9 24.4 (9.9)
Relative (%) 37.0 24.9 (3.4)
SHAREHOLDING PATTERN (%)
Promoters 68.75
FIs & Local MFs 7.76
FIIs 5.09
Public & Others 18.40
Source : BSE
Satish Mishra
satish.mishra@hdfcsec.com
+91-22-6171-7334
Deepak Kolhedeepak.kolhe@hdfcsec.com
+91-22-6171-7316HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
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INSECTICIDES INDIA: INITIATING COVERAGE
IIL’s performance over the past 15 years
Insecticide India Ltd (IIL) is one of the fastest-
growing agrochemical companies in India. Its
current product portfolio comprises branded
products, technical and bulk formulations.
It has a portfolio of 99 formulations and 18 activeingredients. IIL enjoys a pan-India presence
through a network of 5,000 distributors.
Over the years, revenues have grown multi-fold,
led by inorganic acquisition of brands, expansion
of distribution network and tie-up with innovators.
The margins are strengthening with focus on high-
margin products. The revenue share from top-20products (Navratna and Super-11) has increased to
48% in FY15 from 40% in FY12.
Outstanding performance over the years
Source: Capitaline, Company, HDFC sec Inst Research (Defici t more than 10%)
FY02-FY06 FY07-FY13 FY14-FY18E
Started operations in Chopanki(Rajasthan)
Acquired 21 brands from MontariIndustries Ltd in 2003
Commissioned second formulationplant in Samba (Jammu)
Set up R&D Laboratory in Chopanki
Acquired the exclusive rights to sell
the Thimet brand in India from
AMVAC
Technical plant commenced operations inChopanki and Dahej
Acquired Monocil brand from NOCIL Ltd
Two new formulation plants at Dahej andUdhampur commenced operations
Launched Nuvan, Hakama and Pulsor incollaboration with AMVAC and Nissan
Entered into a JV with OAT Agrio, Japan,for research and invention of new
agricultural chemicals
Poor monsoon resulted in
slower growth in FY15 and FY16
Market share reached 7%
Contribution started from
newly launched products like
Hakama, Pulsor
Launched R&D centre with OAT
Agrio, Japan
Normal monsoon expectation in
2016 is key
Products expansion through
acquisition, tie-ups and reverseengineering
FY16 was difficult owing to
second year of poor monsoon
Contributions from new products
launched in the past two years
are yet to pick up
-
2
4
6
8
10
12
14
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY02 F Y03 FY04 FY05 F Y06 FY07 FY08 FY 09 FY10 FY11 F Y12 FY13 FY14 F Y15 FY16E FY17E FY18E
Revenues (Rs mn) (LHS) EBITDA (Rs mn) (LHS) EBITDA Margins (%) (RHS)
2 years rain deficit
1 year rain deficit
2 years deficit
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INSECTICIDES INDIA: INITIATING COVERAGE
Business segments
IIL has three major segments (1) Branded
formulation, (2) Technical, and (3) Bulk
formulation. Branded business is B2C whereas the
others are B2B.
Of the 99 products in its portfolio, IIL hascategorised the top-20 high-growth high-margin
ones as Navratna and Super-11.
The top-20 products contribute ~70% to the
branded segment’s revenues and ~48% to total
revenues.
Revenue share (FY15)
Source: Company, HDFC sec Inst Research
Exports: The contribution from exports was only
3% of revenues in FY15. However, the
management expects it to cross the Rs 1-bn mark
within five years.
IIL is pursuing registration of its products in the
Middle East and South-East Asia. A JV with OAT
Agrio, Japan, will be instrumental in discovering
new molecules.
Expansion via R&D, acquisitions and tie-ups
IIL manufactures off-patent technicals that provide
backward integration to its formulation portfolio.
It has expanded its product portfolio through
inorganic routes such as 21 products from Montari
Industries and one from NOCIL.
IIL is sourcing specialty molecules for four
products through international collaborations with
AMVAC (US) and Nissan Chemical (Japan). All the
products are successful and contributed ~19% to
total revenues in FY15.
Acquisition and tie-ups
Year Events
2003 Acquisition of 21 brands of Montari industries
2006Acquired the exclusive rights to sell Thimet and
Nuvan in India from AMVAC, Netherlands
2011 Acquired Monocil from NOCIL Ltd.
2012Launched Hakama and Pulsor in collaboration with
Nissan, Japan
2012Entered in to a JV with OAT Agrio, Japan for research
and invention of new agricultural chemicals
Source: Company, HDFC sec Inst Research
JV with OAT Agrio: IIL and OAT Agrio, Japan, haveformed a 50-50 JV and have set up an R&D centre
in Rajasthan. The total investment will be ~Rs
400mn. The JV will work towards the innovation of
new molecules.
~70% of revenues come from
branded sales
IIL has product tie-ups with
AMVAC (US) and Nissan (Japan)
JV with OAT Agrio (Japan) will
work towards the discovery of
new molecules
16%
11%
37%
11%
22%
70%Branded
Technical
Bulk-
Formulation
Navratna
Super 11
Other
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INSECTICIDES INDIA: INITIATING COVERAGE
Focus on fast-growing segments
Rising share from Navratna/Super-11 in formulation
The company has categorised the top-20 high-
margin high-growth products into Navratna and
Super-11 groups. The marketing focus is diverted
towards increasing their revenue share.
As a result, revenues from the top-20 products
have been ~31% CAGR over FY12-15 and their
share increased from 40% to 48%.
Newly launched products like Nuvan, Hakama,
Pulsor and Logo are doing well.
Navratnas Gross Revenues Break-up
Products (Rs mn) FY12 FY13 FY14 FY15
Thimet 416 501 716 774Nuvan - 268 512 602
Lethal 374 350 432 511
Monocil 333 370 517 481
Victor 316 392 292 376
Hijack 171 227 344 321
Hakama - 78 221 281
Pulsor - 50 136 276
Pluto/ Xpload 31 34 90 152
Flite 27 33 42 80
Total 1,669 2,304 3,302 3,855
% Of Total Revenue 30 35 36 37
Source: Company, HDFC sec Inst Research
IIL plans to launch new products and strengthen
its marketing network to maintain robust growth
momentum.
Super-11 Gross Revenues Break-up
Products (Rs mn) FY12 FY13 FY14 FY15
Logo/Gama - - 121 233
Indan 154 40 42 205
Sharp 89 114 129 131Arrow 51 64 84 98
Super star 19 50 86 94
Selector 84 107 81 91
Sargent 47 59 58 85
Avon Plus - 48 61 57
Phentom 70 77 104 55
Metro 31 26 35 33
Streptomil 11 15 26 28
Total 555 600 828 1,110
% Of Total Revenue 10 9 9 11Source: Company, HDFC sec Inst Research
We expect revenues from the top-20 products to
grow at a CAGR of 22% over FY16-18E.
Consequently, their share in total revenues will
increase to ~55%.
Technical revenues to pick up
Technical sales are the second-largest business for
IIL and have contributed ~16% to revenues in
FY15. The company has two technical synthesis
plants with multi-product facilities. The current
capacity stands at 13,800 tpa; utilisation rate was
56% in FY15.
IIL is pursuing registration of its products in the
Middle East and South-East Asia.
A JV with OAT Agrio, Japan, will be instrumental in
discovering new technicals.
Top-20 products recorded ~31%CAGR over FY12-15
IIL is pursuing registration of its
products in the Middle East and
South-East Asia
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INSECTICIDES INDIA: INITIATING COVERAGE
Robust Growth To Continue In Technicals
Source: Company, HDFC sec Inst Research
The technical segment has reported revenue
growth of ~38% CAGR over FY12-15.
As of FY15, IIL had a portfolio of 19 technicals.
Technicals launched in FY15 like diafenthiuron,
imazethapyr and myclobutanil are yet to
contribute to revenues. We believe revenues from
technical will grow at 15% CAGR over FY16-18E.
Ready infrastructure to support robust growth
Insecticide India has a strong portfolio of products.
To maintain its growth momentum, the company
has added production capacity and strengthenedits distribution network.
Building up capacity
The company has spent ~Rs 2.5bn in the past five
years towards capacity expansion. IIL has
formulation and technical manufacturing facilities
across Chopanki (Rajasthan), Udhampur (J&K),
Samba (J&K) and Dahej (Gujarat).
The current capacities operate at sub-50%
utilisation level. We don’t see any major capex
requirement over the next 2-3 years.
Capacity And Utilisation For FY15
PlantsStarted
inCapacity (tpa) Utilisation (%)
Chopanki
Unit 1 Formulation FY02 18,000 62
Unit 2 Technicals FY08 3,800 32
Unit 3 Formulation FY15 20,000 11
Samba
Formulation FY05 13,430 46
Udhampur
Formulation FY12 5,600 52
Dahej
Unit 1 Formulation FY12 53,000 28Unit 2 Technicals FY13 10,000 66
Source: Company, HDFC sec Inst Research
Strong distribution network
A strong marketing network is the key factor for
brand awareness and product reach. This helps in
partnering with global innovators.
The company has pan-India distribution network.
It increased its number of distributors ~55% overthe past three years to 5,000 in FY15.
Strengthening distribution network
Particulars FY12 FY15 CAGR (%)
Distributor 3,200 5,000 16
Dealers/Retailers 50,000 60,000 6
Revenues (Rs mn) 4,501 9,642 29
Source: Company, HDFC sec Inst Research
11%10% 10%
16%
18% 18% 18%
0%
5%
10%
15%
20%
-
500
1,000
1,500
2,000
2,500
3,000
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6 E
F Y 1 7 E
F Y 1 8 E
Technica ls (Rs mn) (LHS) % of Revenues (RHS)
Technical sales are the second
largest business and contributed
~16% to revenues in FY15
The company has spent ~Rs
2.5bn in the past five years
towards capacity expansion
We don’t see any major capex
over the next 2-3 years
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INSECTICIDES INDIA: INITIATING COVERAGE
Well spread across geography
IIL’s footprint is well spread across India.
It has a presence across major crop-producing
states like Punjab, Haryana, AP, Maharashtra,
Tamil Nadu, UP, MP and Gujarat.
Source: Company, HDFC sec Inst Research
Lower capex leads to positive FCF
A capex of Rs 2.5bn in the past five years has been
completed. We expect positive FCF and an
improvement in return ratios.
Source: Company, HDFC sec Inst Research
Improving return ratios
Even in the capex phase (FY11-15), return ratios
were healthy.
Although ratios have fallen in FY16, we expect ROE
and ROCE to pick up to 17% and 13% by FY18.
Source: Company, HDFC sec Inst Research
Debt to equity to be comfortable
The money raised from QIP (Rs 838mn) was used
for debt repayment. Further cash generation will
lead to reduction in D/E to 0.5x by FY18E.
Source: Company, HDFC sec Inst Research
-1,500
-1,000
-500
-
500
1,000
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6 E
F Y 1 7 E
F Y 1 8 E
Capex ( LH S) F CF (R HS )
Rs mn
-
5
10
15
20
25
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6 E
F Y 1 7 E
F Y 1 8 E
ROE (%) ROCE (%)
0.9
1.0 1.01.1
0.90.7
0.5
-
1
2
3
4
5
6
-
0.2
0.4
0.6
0.8
1.0
1.2
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
F Y 1 6 E
F Y 1 7 E
F Y 1 8 E
Debt/Equity (x) Interest Cover (x) - RHS
Lower capex will lead to positive
FCF and return ratios will
improve from FY17E
The money from QIP was used
for loan repayment
41 39 39 41
26 25 26 24
16 18 19 21
18 18 16 15
0%
20%
40%
60%
80%
100%
F Y 1 2
F Y 1 3
F Y 1 4
F Y 1 5
North South Central / West East
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INSECTICIDES INDIA: INITIATING COVERAGE
Risks and concerns High WC cycle: IIL’s cash conversion cycle is
around 120-130 days - higher than PI, Rallis and
UPL. Although, Dhanuka Agritech has a higher cash
conversion cycle, it is mainly on account of lower
payables.
Working Capital Cycle As On FY15
Particulars (Days) UPL PI Ind. Rallis Dhanuka IIL
Inventory 89 71 79 89 148
Debtor 111 72 50 90 63
Payables 97 67 58 29 79
Cash conversion cycle 103 77 71 150 132
Source: Company, HDFC sec Inst Research
Monsoon: Indian agriculture is dependent on
monsoon as only ~46% of the arable land is
irrigated.
Changes in regulation: Product registration is a
time-consuming process. Any changes inregulation could impact product launches.
Fluctuation in raw material: Most of the raw
materials are derived from crude oil. Any
fluctuation in crude prices could impact margins.
A normal monsoon is key for
Indian agrochemical players
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INSECTICIDES INDIA: INITIATING COVERAGE
Assumptions
Revenue Growth (%) FY13 FY14 FY15 FY16E FY17E FY18E
Navratna 38.0 43.3 16.7 5.0 22.0 22.0
Super 11 8.1 37.9 34.0 2.0 22.0 22.0
Other Branded Sale 4.5 22.3 -17.5 -5.0 10.0 10.0
Technical 1.5 54.0 68.4 17.0 15.0 15.0
Gross Profit Margins (%) 32.8 30.4 32.8 30.8 31.5 31.9
Branded Formulation (GPM %) 37.5 38.0 38.0
Institutional Sales (GPM %) 15.0 15.0 15.0
Source: Company, HDFC sec Inst Research
Peer Valuations
Mcap
(Rs bn)
CMP
(Rs/sh) Rating
TP
(Rs/sh)
EPS (Rs/sh) P/E (x) P/BV (x) ROE (%)
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Chambal Fert 27.6 66 BUY 76 9.9 8.9 9.5 6.7 7.5 7.0 1.2 1.0 0.9 17.8 14.7 14.1Coromandel Int 63.7 225 BUY 260 11.8 15.9 21.7 19.0 14.2 10.4 2.7 2.4 2.1 14.9 18.0 21.7
Dhanuka Agritech 31.5 630 BUY 700 19.5 26.4 35.0 32.2 23.9 18.0 6.5 5.4 4.4 21.8 24.6 26.9
Insecticides India 9.1 441 BUY 535 19.5 25.9 33.4 22.7 17.0 13.2 2.7 2.4 2.0 12.9 15.0 16.7
PI Industries 85.5 626 BUY 680 20.1 25.0 31.1 31.1 25.1 20.1 7.6 6.1 4.9 27.3 27.1 27.0
Rallis India 40.5 209 BUY 250 7.4 9.8 12.5 28.3 21.3 16.6 4.5 4.0 3.5 16.7 19.9 22.3
UPL Ltd 250.2 584 BUY 625 31.8 35.3 43.5 18.4 16.5 13.4 3.7 3.1 2.6 21.6 20.5 21.3
Navin Fluorine 20.6 2,105 BUY 2,150 85.5 99.7 134.4 24.6 21.1 15.7 3.2 2.9 2.5 13.5 14.3 17.2
SRF Ltd 72.4 1,261 NEU 1,330 73.7 86.5 95.0 17.1 14.6 13.3 2.7 2.3 2.0 17.0 17.3 16.5
Source : Company, HDFC sec Inst Research
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INSECTICIDES INDIA: INITIATING COVERAGE
Income Statement (Standalone)
(Rs mn) FY14 FY15 FY16E FY17E FY18E
Net Revenues 8,641 9,642 9,785 11,315 13,139
Growth (%) 40.1 11.6 1.5 15.6 16.1
Material Expenses 4,997 5,987 6,203 7,093 8,195
Traded Goods 1,018 496 571 656 755
Employee Expenses 293 344 396 456 524
Other Operating Expenses 1,515 1,704 1,653 1,983 2,380
EBITDA 818 1,111 962 1,127 1,286
EBITDA Margin (%) 9.5 11.5 9.8 10.0 9.8
EBIDTA Growth (%) 18.0 35.8 (13.4) 17.2 14.1
Depreciation 67 142 167 189 205
EBIT 751 969 795 938 1,081
Other Income (Including EO
Items)5 4 5 5 5
Interest 269 332 297 274 222PBT 487 642 503 669 864
Tax 87 93 101 134 173
RPAT 400 548 402 535 691
Mionority Interest - - - - -
EO (Loss) / Profit (Net Of Tax) - - - - -
APAT 400 548 402 535 691
APAT Growth (%) 13.3 37.2 (26.7) 33.0 29.2
AEPS 19.3 26.5 19.5 25.9 33.4
EPS Growth (%) 13.3 37.2 (26.7) 33.0 29.2
Source: Company, HDFC sec Inst Research
Balance Sheet (Standalone)
(Rs mn) FY14 FY15 FY16E FY17E FY18E
SOURCES OF FUNDS
Share Capital 127 127 207 207 207
Reserves 2,339 2,787 3,132 3,610 4,244
Total Shareholders Funds 2,466 2,914 3,339 3,817 4,451
Long-term Debt 302 537 498 464 432
Short-term Debt 2,278 2,680 2,470 2,300 1,852
Total Debt 2,580 3,216 2,968 2,764 2,284
Long-term Provisions & Others 46 45 45 45 45
Net Deferred Tax Liability 133 156 156 156 156
TOTAL SOURCES OF FUNDS 5,225 6,331 6,508 6,782 6,937
APPLICATION OF FUNDS
Net Block 1,701 2,047 2,257 2,368 2,362
CWIP 542 377 200 100 100
Investments 111 111 111 111 111LT Loans & Advances 48 59 59 59 59
Other Non-current Assets 63 22 22 22 22
Total Non-current Assets 2,464 2,616 2,649 2,660 2,654
Inventories 3,117 3,914 4,021 4,495 5,040
Debtors 1,279 1,668 1,743 1,860 1,980
Other Current Assets 964 944 944 944 944
Cash & Equivalents 90 66 75 82 85
Total Current Assets 5,450 6,592 6,783 7,381 8,049
Creditors 2,036 2,098 2,145 2,480 2,988
Other Current Liabilities & Provns 653 779 779 779 779
Total Current Liabilities 2,689 2,877 2,924 3,259 3,767
Net Current Assets 2,761 3,715 3,859 4,122 4,282
TOTAL APPLICATION OF FUNDS 5,225 6,331 6,508 6,782 6,937
Source: Company, HDFC sec Inst Research
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INSECTICIDES INDIA: INITIATING COVERAGE
Cash Flow (Standalone)
(Rs mn) FY14 FY15 FY16E FY17E FY18E
Reported PBT 487 642 503 669 864
Non-operating & EO Items (3) (3) (3) (3) (3)
Interest Expenses 159 240 297 274 222
Depreciation 67 142 167 189 205
Working Capital Change (251) (999) (135) (256) (157)
Tax Paid (84) (80) (101) (134) (173)
OPERATING CASH FLOW ( a ) 374 (59) 728 739 958
Capex (462) (335) (200) (200) (200)
Free Cash Flow (FCF) (88) (394) 528 539 758
Investments (111) 0 0 0 0
Non-operating Income 3 3 3 3 3
INVESTING CASH FLOW ( b ) (570) (332) (197) (197) (197)
Debt Issuance/(Repaid) 437 645 (248) (204) (480)
Interest Expenses (159) (240) (297) (274) (222)FCFE 191 11 (17) 61 57
Share Capital Issuance - - 80 - -
Dividend (45) (45) (57) (57) (57)
FINANCING CASH FLOW ( c ) 234 360 (522) (536) (758)
NET CASH FLOW (a+b+c) 38 (30) 9 7 3
EO Items, Others - - - - -
Closing Cash & Equivalents 90 66 75 82 85
Source: Company, HDFC sec Inst Research
Key Ratios
FY14 FY15 FY16E FY17E FY18E
PROFITABILITY (%)
GPM 30.4 32.8 30.8 31.5 31.9
EBITDA Margin 9.5 11.5 9.8 10.0 9.8
EBIT Margin 8.7 10.0 8.1 8.3 8.2
APAT Margin 4.6 5.7 4.1 4.7 5.3
RoE 17.4 20.4 12.9 15.0 16.7
Core RoCE 13.4 15.1 10.5 11.9 13.3
RoCE 13.3 14.9 10.4 11.8 13.2
EFFICIENCY
Tax Rate (%) 17.9 14.5 20.0 20.0 20.0
Asset Turnover (x) 1.8 1.7 1.6 1.8 2.0
Inventory (days) 132 148 150 145 140
Debtors (days) 54 63 65 60 55
Other Current Assets (days) 13 14 14 12 10Payables (days) 86 79 80 80 83
Other Current Liab & Provns (days) 21 19 19 17 14
Cash Conversion Cycle (days) 92 126 130 120 108
Debt/EBITDA (x) 3.2 2.9 3.1 2.5 1.8
Net D/E (x) 1.0 1.1 0.9 0.7 0.5
Interest Coverage 2.8 2.9 2.7 3.4 4.9
PER SHARE DATA (Rs/sh)
EPS 19.3 26.5 19.5 25.9 33.4
CEPS 36.8 54.4 27.5 35.0 43.4
DPS 3.0 2.5 2.5 2.5 2.5
BV 194.4 229.8 161.5 184.7 215.3
VALUATION
P/E (x) 22.8 16.6 22.7 17.0 13.2
P/BV (x) 2.3 1.9 2.7 2.4 2.0
EV/EBITDA (x) 9.9 7.9 12.5 10.5 8.8
OCF/EV (%) 4.6 (0.7) 6.1 6.3 8.5
FCF/EV (%) (1.1) (4.5) 4.4 4.6 6.7
FCFE/MCAP (%) 3.4 0.2 (0.2) 0.7 0.6
Dividend Yield (%) 0.7 0.6 0.6 0.6 0.6
Source: Company, HDFC sec Inst Research
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COMPANY UPDATE 13 MAY 2016
Rallis India
BUY
Scripting a turnaroundFY16 has been challenging for Rallis India considering
(1) Two years of rain deficit in India, (2) Weaker Latin
America and European currencies, (3) Muted
international prices of agri-commodities, and (4)
Unfavourable weather in Latin America. Hence,
EBITDA declined 17% YoY to Rs 7.1bn and PAT fell
15% to Rs 3.4bn.
However, things seem to be looking up in FY17 with
the forecast of a normal monsoon, improvement in
agri-commodity prices and strengthening of LatAmcurrencies. Additionally, Rallis has specific triggers
such as (1) New product launches, (2) Custom
synthesis (CSM) revenues likely to begin, and (3)
Growth in the seed business.
The CSM business’ progress is encouraging. Two
products for global innovators have reached the pilot
stage and are headed for commercial production.
The revenue from seeds grew only 6% YoY to Rs
3.2bn in FY16. EBITDA margins were muted as well at
7.2%. Strong growth levers such as (1) Diversified
portfolio, (2) Strong brand, and (3) Pan-India
distribution network are in place for the seed
business. A normal monsoon may lead to revenue
growth of 25-30% CAGR over the next 2-3 years. We
expect a significant boost in profitability led by
operating leverage.
The stock has rallied ~13% in the past month, but we
believe there is more to come. Rallis is a direct
beneficiary of the Indian agriculture growth story.
Lower penetration of agrochemicals in the country
and its cost advantage underpin its long-term
growth. A strong brand, complete portfolio,
extensive distribution network and a strong balance
sheet will help gain market share. Maintain BUY with
a TP of Rs 250/sh (20x FY18EEPS).
Investment arguments
Robust financials: We expect revenues and PAT togrow at a CAGR of 16% and 30% over FY16-18E.
RoE and RoCE will grow to 22.3/20.7% in FY18E vs.
16.7/15.1% in FY16P.
Near-term outlook: Any disappointment related
to monsoon is a big risk for all agri-input
companies. Around 30% of Rallis’ revenues come
from exports. Sharp volatility in global agri
commodity prices and emerging market currencies
will have a direct impact on Rallis India.
Financial Summary (Consolidated) (Rs mn) FY14 FY15 FY16P FY17E FY18E
Net Sales 17,466 18,218 16,279 18,680 21,927
EBITDA 2,613 2,771 2,302 2,997 3,693
APAT 1,519 1,572 1,430 1,904 2,435
Diluted 7.8 8.1 7.4 9.8 12.5
P/E (x) 26.8 25.9 28.4 21.3 16.7
EV / 15.8 15.1 18.0 13.7 10.9
RoE (%) 22.7 20.5 16.7 19.9 22.3
Source: Company, HDFC sec Inst Research
INDUSTRY AGROCHEMICAL
CMP (as on 13 May 2016) Rs 209
Target Price Rs 250
Nifty 7,815
Sensex 25,490
KEY STOCK DATA
Bloomberg RALI IN
No. of Shares (mn) 194
MCap (Rs bn) / ($ mn) 41/607
6m avg traded value (Rs mn) 65
STOCK PERFORMANCE (%)
52 Week high / low Rs 274/142
3M 6M 12M
Absolute (%) 40.4 6.2 (1.0)
Relative (%) 29.5 6.7 5.4
SHAREHOLDING PATTERN (%)
Promoters 50.09
FIs & Local MFs 10.67FIIs 7.56
Public & Others 31.68
Source : BSE
Satish Mishra
satish.mishra@hdfcsec.com
+91-22-6171-7334
Deepak Kolhe
deepak.kolhe@hdfcsec.com+91-22-6171-7316
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
RALLIS INDIA COMPANY UPDATE
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RALLIS INDIA : COMPANY UPDATE
Assumptions Change In Estimates FY13 FY14 FY15 FY16P FY17E FY18E
Sales Growth (%)
Domestic 19.0 20.9 5.3 (7.0) 15.0 15.0
Exports 8.3 17.3 2.0 (20.0) 15.0 25.0
Metahelix 42.2 46.3 40.0 6.4 25.0 25.0Total 14.4 19.8 4.3 (10.6) 14.8 17.4
Gross Margin (%) 39.8 42.3 45.4 48.5 49.0 48.5
Tax Rate (%) 31.0 28.8 27.9 21.0 24.2 24.0
Working capital (days) 4 18 49 43 43 42
Inventory 67 69 79 91 85 80
Debtors 41 35 50 44 45 45
Creditors 63 64 58 61 60 60
Capex (Rs mn) 349 587 431 800 800 800
Source : Company, HDFC sec Inst Research
FY17 Old FY17 New % Change
Net Sales 18,680 18,680 -
EBITDA 2,997 2,997 -
APAT 1,904 1,904 -
AEPS 9.8 9.8 -
FY18 Old FY18 New % Change
Net Sales 21,927 21,927 -
EBITDA 3,693 3,693 -
APAT 2,435 2,435 -
AEPS 12.5 12.5 -
Peer Valuation
Mcap
(Rs bn)
CMP
(Rs/sh) Rating
TP
(Rs/sh)
EPS (Rs/sh) P/E (x) P/BV (x) ROE (%)
FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E
Chambal Fert 27.6 66 BUY 76 9.9 8.9 9.5 6.7 7.5 7.0 1.2 1.0 0.9 17.8 14.7 14.1
Coromandel Int 63.7 225 BUY 260 11.8 15.9 21.7 19.0 14.2 10.4 2.7 2.4 2.1 14.9 18.0 21.7
Dhanuka Agritech 31.5 630 BUY 700 19.5 26.4 35.0 32.2 23.9 18.0 6.5 5.4 4.4 21.8 24.6 26.9
Insecticides India 9.1 441 BUY 535 19.5 25.9 33.4 22.7 17.0 13.2 2.7 2.4 2.0 12.9 15.0 16.7
PI Industries 85.5 626 BUY 680 20.1 25.0 31.1 31.1 25.1 20.1 7.6 6.1 4.9 27.3 27.1 27.0
Rallis India 40.5 209 BUY 250 7.4 9.8 12.5 28.3 21.3 16.6 4.5 4.0 3.5 16.7 19.9 22.3
UPL Ltd 250.2 584 BUY 625 31.8 35.3 43.5 18.4 16.5 13.4 3.7 3.1 2.6 21.6 20.5 21.3
Navin Fluorine 20.6 2,105 BUY 2,150 85.5 99.7 134.4 24.6 21.1 15.7 3.2 2.9 2.5 13.5 14.3 17.2
SRF Ltd 72.4 1,261 NEU 1,330 73.7 86.5 95.0 17.1 14.6 13.3 2.7 2.3 2.0 17.0 17.3 16.5
Source: Company, HDFC sec Inst Research
No change in estimates
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RALLIS INDIA : COMPANY UPDATE
Income Statement (Consolidated)
(Rs mn) FY14 FY15 FY16 FY17E FY18E
Net Sales 17,466 18,218 16,279 18,680 21,927
Growth (%) 19.8 4.3 (10.6) 14.8 17.4
Material Expenses 8,376 8,349 7,405 8,033 9,538
Traded Goods 1,709 1,596 980 1,494 1,754Employee Expenses 1,105 1,294 1,324 1,483 1,661
Other Operating Expenses 3,663 4,208 4,268 4,673 5,281
EBITDA 2,613 2,771 2,302 2,997 3,693
EBITDA Margin (%) 15.0 15.2 14.1 16.0 16.8
EBIDTA Growth (%) 24.1 6.1 (16.9) 30.2 23.2
Depreciation 407 496 446 499 549
EBIT 2,206 2,276 1,856 2,498 3,144
Other Income 64 42 137 86 104
Interest & Financial Charges 126 101 136 72 42
EO Profit/(Loss) - - - - -
PBT 2,144 2,216 1,857 2,513 3,206
Tax 617 618 390 608 770
RPAT 1,527 1,598 1,467 1,904 2,435
Minority Interest 8 26 37 - -
APAT 1,519 1,572 1,430 1,904 2,435
APAT Growth (%) 27.6 3.5 (9.0) 33.1 27.9
AEPS 7.8 8.1 7.4 9.8 12.5
EPS Growth (%) 27.6 3.5 (9.0) 33.1 27.9
Source: Company, HDFC sec Inst Research
Balance Sheet (Consolidated)
(Rs mn) FY14 FY15 FY16P FY17E FY18E
SOURCES OF FUNDS
Share Capital 194 194 195 195 195
Reserves 6,986 7,951 8,796 9,965 11,460
Total Shareholders’ Funds 7,180 8,145 8,990 10,159 11,654Long-term Debt 261 268 262 112 112
Short-term Debt 507 985 633 483 283
Total Debt 768 1,253 895 595 395
Minority Interest 105 101 38 38 38
Long-term Provisions & Others 180 224 218 218 218
Net Deferred Tax liability 315 357 388 388 388
TOTAL SOURCES OF FUNDS 8,549 10,080 10,529 11,398 12,692
APPLICATION OF FUNDS
Net Block 4,182 3,996 3,976 4,504 4,759
CWIP 211 265 603 603 603
Goodwill 1,859 1,958 2,591 2,591 2,591
Investments 187 187 187 187 187
LT Loans & Advances 1,077 1,101 1,097 1,097 1,097
Other Non-current Assets - - - - -
Inventories 3,295 3,942 4,048 4,350 4,806
Trade Receivables 1,679 2,477 1,966 2,303 2,703
Cash & Equivalents 157 127 171 207 925
ST Loans & Advances 298 279 351 351 351
Other Current Assets 27 26 56 56 56
Current Assets 5,456 6,851 6,592 7,267 8,841
Trade Payables 3,051 2,882 2,737 3,071 3,604
Other Current Liabilities 1,372 1,396 1,781 1,781 1,781
Current Liabilities 4,423 4,278 4,518 4,852 5,386
Net Current Assets 1,032 2,573 2,075 2,415 3,455
TOTAL APPLICATION OF FUNDS 8,549 10,080 10,529 11,398 12,692
Source: Company, HDFC sec Inst Research
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RALLIS INDIA : COMPANY UPDATE
Cash Flow (Consolidated)
(Rs mn) FY14 FY15 FY16P FY17E FY18E
Reported PAT 1,553 1,576 1,430 1,904 2,435
Non-operating income & EO
items46 (38) 92 58 69
PAT from Operations 1,507 1,613 1,339 1,847 2,366Interest 123 101 136 72 42
Depreciation 407 496 446 499 549
Working Capital Change (230) (1,487) (106) (531) (326)
OPERATING CASH FLOW ( a ) 1,807 724 1,815 1,886 2,630
Capex (587) (431) (800) (800) (800)
Free cash flow (FCF) 1,221 292 1,015 1,086 1,830
Investments (187) (119) - - -
Non-Operating Income 46 (38) 92 58 69
INVESTING CASH FLOW ( b ) (728) (588) (708) (742) (731)
Share Capital Issuance - - - - -Debt Issuance (545) 485 (358) (300) (200)
Dividend (521) (550) (569) (735) (940)
Interest (124) (101) (136) (72) (42)
FINANCING CASH FLOW ( c ) (1,191) (166) (1,062) (1,107) (1,182)
NET CASH FLOW (a+b+c) (112) (31) 44 36 718
EO Items - - - - -
Closing Cash & Equivalents 157 127 171 207 925
Source: Company, HDFC sec Inst Research
Key RatiosFY14 FY15 FY16P FY17E FY18E
PROFITABILITY (%)
GPM 42.3 45.4 48.5 49.0 48.5
EBITDA Margin 15.0 15.2 14.1 16.0 16.8
EBIT Margin 12.6 12.5 11.4 13.4 14.3
APAT Margin 8.7 8.6 8.8 10.2 11.1
RoE 22.7 20.5 16.7 19.9 22.3
Core RoCE 23.1 20.2 16.0 19.9 23.3
RoCE 20.1 17.8 15.1 18.1 20.7
EFFICIENCY
Tax Rate (%) 28.8 27.9 21.0 24.2 24.0
Asset Turnover (x) 2.2 2.0 1.6 1.7 1.8
Inventory (days) 69 79 91 85 80
Debtors (days) 35 50 44 45 45
Other Current Assets (days) 7 6 9 8 7
Payables (days) 64 58 61 60 60Other Current Liab & Prov (days) 29 28 40 35 30
Cash Conversion Cycle (days) 18 49 43 43 42
Debt/EBITDA (x) 0.3 0.5 0.4 0.2 0.1
Net D/E 0.1 0.1 0.1 0.0 (0.0)
Interest Coverage 17.5 22.5 13.7 34.8 75.3
PER SHARE DATA (Rs/sh)
EPS 7.8 8.1 7.4 9.8 12.5
CEPS 9.9 10.6 9.6 12.4 15.3
DPS 2.4 2.5 2.5 3.2 4.1
BV 36.9 41.9 46.2 52.2 59.9
VALUATIONP/E 26.8 25.9 28.4 21.3 16.7
P/BV 5.7 5.0 4.5 4.0 3.5
EV/EBITDA 15.8 15.1 18.0 13.7 10.9
OCF/EV (%) 4.4 1.7 4.4 4.6 6.6
FCF/EV (%) 3.0 0.7 2.5 2.6 4.6
FCFE/MCAP (%) 2.7 0.5 2.2 2.5 4.4
Dividend Yield (%) 1.1 1.2 1.2 1.5 2.0
Source: Company, HDFC sec Inst Research
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AGROCHEMICALS : SECTOR REPORT
RECOMMENDATION HISTORY
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Date CMP Reco Target
24-Jul-15 235 BUY 265
8-Oct-15 215 BUY 26527-Oct-15 207 BUY 240
19-Jan-16 149 BUY 200
28-Apr-16 197 BUY 250
13-May-16 209 BUY 250
100
150
200
250
300
350
M a y - 1 5
J u n - 1 5
J u l - 1 5
A u g - 1 5
S e p - 1 5
O c t - 1 5
N o v - 1 5
D e c - 1 5
J a n - 1 6
F e b - 1 6
M a r - 1 6
A p r - 1 6
M a y - 1 6
Rallis TP
200
300
400
500
600
700
M a y - 1 5
J u n - 1 5
J u l - 1 5
A u g - 1 5
S e p - 1 5
O c t - 1 5
N o v - 1 5
D e c - 1 5
J a n - 1 6
F e b - 1 6
M a r - 1 6
A p r - 1 6
M a y - 1 6
Insecticides 1 yr price performance
350
400
450
500550
600
650
700
M a y - 1 5
J u n - 1 5
J u l - 1 5
A u g - 1 5
S e p - 1 5
O c t - 1 5
N o v - 1 5
D e c - 1 5
J a n - 1 6
F e b - 1 6
M a r - 1 6
A p r - 1 6
M a y - 1 6
Dhanuka 1 yr price performance
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AGROCHEMICALS : SECTOR REPORT
Disclosure:We, Satish Mishra, PGDM, & Deepak Kolhe, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect ourviews about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) inthis report.Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or itsAssociate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. FurtherResearch Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.Any holding in stock –No
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