Insecticides India: Bumper yield ahead

Insecticides India

Initiating Coverage | Sector: Agri

Insecticides India

BSE Sensex

26,425

S&P CNX

7,983

CMP: INR510

TP: INR800 (57%)

Buy

Bumper yield ahead!

Stock Info

Bloomberg

Equity Shares (m)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

M.Cap. (INR b)

M.Cap. (USD b)

AvgVal. INRm/Vol‘000

Free float (%)

Higher utilization to drive 36% EPS CAGR over FY15-17

INST IN

12.7

632/240

1/-14/85

6.2

0.1

43/62

25.3



Financial Snapshot (INR b)

2015 2016E 2017E

Y/E March

Sales

EBITDA

EPS (INR)

EPS Gr (%)

BV/Sh (INR)

RoE (%)

RoCE (%)

P/E (x)

P/BV (x)

9.6

1.1

0.5

28.8

37.4

20.3

17.8

17.7

3.3

11.5

1.4

0.8

39.5

37.0

22.8

20.8

12.9

2.6

13.5

1.8

1.0

53.4

35.2

24.7

24.9

9.5

2.1

Insecticides India (INST) is amongst the top 10 Indian agrochemical companies and

commands ~7% market share. It has emerged as a strong player in the branded

formulations market with a portfolio of 99 brands.

We expect strong growth, given its measures to ramp up revenues on existing

branded products, launch of new molecules, potential scaling up of technicals

business, and strong room to improve capacity utilization from ~65% currently.

We believe INST can post 18% revenue CAGR and 36% PAT CAGR over FY15-17

along with strong FCF generation (INR1.4b over FY15-17) and significant

improvement in return ratios (RoCE and RoE to improve from 17.8% and 20.3% to

24.9% and 24.7%, respectively, over FY15-17. Initiate with a ‘Buy’.

Focus on ‘Navratna’ and ‘Super 11’ brands to drive growth and margins

INST has built a strong portfolio of 99 brands in its branded formulations

business (77% of total revenues) through a) acquisitions, b) in-licensing

arrangements and c) reverse engineering. To drive better scale and improve

margins, the management’s focus has been on portfolio consolidation over the

last three years, (focusing on Top 20 Brands, which are amongst the Top 3

brands in their respective categories and command 500bp higher margins than

the rest of the brand portfolio). Going forward, we expect reduction in number

of brands to 75, taking the revenue contribution from the top 20 brands to

~80%. Within the top 20 brands, we expect growth to be led by recently

launched in-licensed brands—‘Hakama’ and ‘Pulsar’, which have completed the

free sampling and promotion stages and are now ready for scale-up.

153.8 192.6 240.9

Shareholding pattern (%)

As on

Mar-15 Dec-14 Mar-14

Promoter

74.7

DII

6.6

6.5

5.3

FII

4.1

1.2

Others

14.6

14.7

18.8

FII Includes depository receipts

Stock Performance (1-year)

Insecticides India

Sensex - Rebased

700

575

450

325

200

Capacity utilization ramp-up to drive FCF generation and return ratios

INST commissioned INR2.5b capex (which will deliver an asset turnover of ~4x)

over FY11-15. Initially, the technical facility at Dahej faced teething problems

after commissioning, which impacted margins in FY14. However, INST overcame

those problems and ensured higher utilization (51% in FY15) at the facility. We

believe with the current product mix and price levels, INST can potentially

generate revenues of INR18b from the current capacities (as against INR9.2b in

FY15) requiring minimal capex going forward.

Valuation and view

Given its measures to ramp up revenues on existing branded products, launch of

new molecules, scale up of technicals business, and strong room to improve

capacity utilization from 65% currently, we believe INST can post 18% revenue

CAGR and 36% PAT CAGR over FY15-17 along with strong FCF generation

(INR1.4b over FY15-17) with significant improvement in return ratios (RoCE and

RoE to improve from 17.8% and 20.3% to 24.9% and 24.7%, respectively, over

FY15-17). We believe valuations at 12.9x FY16 and 9.5x FY17 are attractive as

compared with peer group average of 26x FY16 and 21x FY17, warranting a re-

rating. We initiate coverage with a ‘Buy’ rating with a PT of INR800 (15x FY17).

15 June 2015

Insecticides India

Company overview

Insecticides: Evolved into an integrated manufacturer from a trading outfit

Insecticides (India) Limited (INST) is amongst the top 10 Indian agrochemical

companies, with almost 7% market share of the Indian agrochemical market. The

company was incorporated in 1996 and was involved only in trading of

agrochemicals in the country till 2002. In 2002, it started manufacturing operations

by commissioning its first formulation facility in Chopanki (Rajasthan). It currently

operates four manufacturing plants with an overall formulation capacity of 57,080

MT and technical capacity of 13,800 MT. INST has 5 Formulations & 2 Technicals

facilities at Chopanki (Rajasthan), Samba (J&K), Udhampur (J&K) and Dahej

(Gujarat).

Branded formulations account for 77% of revenues

INST caters to the insecticide, herbicide, fungicide & PGRs segments; it has a varied

portfolio of 99 formulations, 18 technicals and 350+ SKUs. It derives 63% of its

revenues from insecticides, 25% from herbicides, 10% from fungicides and 2% from

plant growth nutrients. Branded formulations form 77% of revenues, technicals 13%

and bulk formulations form the balance 10%. Domestic market accounts for 95% of

the sales. B2C sales account for 77% of the total sales and B2B sales 23%. The

company has a successful brand portfolio, with a track record of turning around

acquired off-shelf brands into market leaders.

Exhibit 1: Insecticides form 63% of revenues

Exhibit 2: Branded formulations form 77% of revenues

Technicals,

13%

Branded

formu-

lations, 77%

Fungicides,

10%

Source: Company, MOSL

Herbicides,

25%

Insecticides

, 63%

Plant

growth

nutrients,

Bulk

formulation

s, 10%

Exhibit 3: B2C sales form 77% of total revenues

B2B sales, 23%

B2C sales, 77%

Source: Company, MOSL

15 June 2015

Insecticides India

Acquisitions, In-licensing and R&D have driven product expansions

INST initially built its product portfolio via acquisitions such as Mantari from

Ranbaxy Group and Monosil from Nocil. It also has international tie-ups with AMVAC

and Nissan Chemicals for brand licensing, marketing and distribution rights. Besides

acquired and in-licensed brands, INST over the years created its own brands such as

Hijack, Selector, Strike, Flite 71, Victor, Monocil, Xplode, Lethal, Nayak, Sharp, Indan

4g, Super fighter, Aflatoon, Bravo, Titan, Metacil, Milstim, Mycoraja, Prime gold, and

Olympic. It primarily relied on reverse engineering off-patent products to create the

products behind these brands. It has an in-house R&D facility, accredited by NABL &

recognized by DSIR with 14 scientists, responsible for new product creation.

Navratnas (the top 9 brands) & Super 11 brands (the next top 11 brands) contribute

53% and 15%, respectively, to revenues of the total branded formulation sales; 60%

of the revenues of are from agrochemicals used for rice and cotton.

Exhibit 4: Key brands in each product category

Category

Insecticides

Herbicides

Fungicides

Plant growth nutrients

Brands

Thimet, Nuvan, Victor, Monocil, Xplode, Lethal, Nayak, Sharp, Indan 4g,

Super fighter, Aflatoon, Bravo, Titan, Metacil

Hakama, Hijack, Selector, Strike, Flite 71

Pulsor, Force 11, Care, Himil, Prism

Milstim, Mycoraja, Prime gold, Olympic

Source: Company, MOSL

15 June 2015

Insecticides India

Scaling up of existing brands and robust new product

pipeline to drive growth and market share gain

Revenue contribution from Top 20 brands to increase from 68.6% to 78.7%



We believe existing in-licensed brands ‘Hakama’ and ‘Pulsar’, which have completed

their formative period (normally lasts three years and involves distributing free

samples to farmers), will now enter growth phase and witness margin expansion.

We believe management’s strategy of focusing on top 20 brands will drive better focus

on best-selling products and be margin accretive (as the top 20 brands enjoy 500bp

higher margins than other brands).

Portfolio consolidation strategy has trimmed the brands portfolio over the last three

years (from 120 to 99), thus ensuring higher revenue share from the top 20 brands

(from 50.8% to 68.6% over FY12-15). We expect further reduction (to 75), taking

revenues proportion from the top 20 brands to ~78.7% in FY17.

INST currently has five new in-licensing products in the pipeline. It has also developed

12 new products (through reverse engineering), which provide strong growth visibility.

Scaling up of existing in-licensed brands ‘Hakama’ and ‘Pulsar’ on cards

INST entered into an in-licensing agreement with the Nissan Group in 2012 for

‘Hakama’ (used for soybean, paddy) and ‘Pulsar’ (used for Potato) brands. These

brands are still in the formative years in India, with revenues of INR281m (Hakama)

and INR276m (Pulsar). Our interaction with the management suggests that in the

formative period (which normally lasts 3 years), the company aggressively markets

the products (usually in the form of free samples to farmers) to showcase the

superiority of the products. Hence, after the formative period is over, the brand

witnesses strong revenue growth and margin expansion as free samples are no

longer distributed and farmers demand the products because of their superiority.

With both these brands now entering the fourth year of operations, we expect

substantial scale up in revenues and significant margin expansion in these brands

from FY16 onwards.

Exhibit 11: Navratna products form 53% of branded sales

Pluto /

Flite, 1%

Xpload, 2%

Pulsor, 4%

Hakama,

Hijack, 4%

Nuvan, 8%

Victor, 5%

Monocil,

Lethal, 7%

Source: Company, MOSL

Exhibit 12: Super 11 products contribute 15% to branded sales

Phentom,

Avon Plus / 1%

Avone, 1%

Sargent, 1%

Selector /

Select, 1%

Super Star,

Metro,

Indan, 3%

Streptomil,

Logo /

Gama, 3%

Thimet,

11%

Arrow, 1%

Sharp, 2%

Source: Company, MOSL

15 June 2015

Insecticides India

Focus on Navratnas and Super 11

Navratnas (the top 9 brands) and Super 11 (the next top 11 brands) contribute 53%

and 15%, respectively, to revenues of the total branded formulation sales. To better

focus on larger brands, INST has been phasing out smaller brands and has reduced

its portfolio by 21 over the last three years; it currently has a portfolio of 99 brands

under branded formulations. With this, the revenue share of the top 20 brands

(Navratna + Super 11) has improved from 50.8% to 68.6% over FY12-15. The

management plans to reduce the number of brands to 75 over the next 2 years, thus

improving the revenue contribution from the top 20 brands to ~78.7%. We believe

this strategy bodes well, as it gives the necessary focus on key brands and will be

incrementally positive from a margin perspective (product margins for the top 20

brands are 500bp higher than other brands—Navratna products command 11-12%

margins while Super 11 products command 17-18% margins as against corporate

margins of 11.5%).

Exhibit 13: Portfolio consolidation is a conscious strategy under progress

Navratna

48.0

56.3

11.6

60.0

12.0

Super 11

53.3

68.6

15.3

Total

55.9

73.9

18.1

21.0

57.7

78.7

38.1

50.8

12.7

44.7

FY12

FY13

FY14

FY15

FY16E

FY17E

Source: Company, MOSL

Exhibit 14: Top 10 products contribute 53% to revenues (27% from in-licensing)

Product name Category

Thimet

Nuvan

Lethal

Monocil

Victor

Hijack

Hakama

Pulsor

Insecticide

Herbicide

Fungicide

Technical Name

Phorate 10% CG

Dichlorovos 76% EC

Chlorpyriphos 20%EC

Launch

FY07

FY13

FY06

Revenue

Type

10.70% Generic- Tie up with AMVAC

8.30%

7.10%

6.60%

5.20%

4.40%

3.90%

3.80%

2.10%

Particulars

Monocrotophos 36% SL FY12

Imidacloprid 17.6 % SL

Glyphosate 41% SL

Quizalofop Etyl 5% EC

Thiafluzamide 24% SC

Emamectin Benzonate

5% SG

FY06

FY10

FY13

FY05

Protects paddy and other crops against

stem borers

Specialty- Tie up with

Protects paddy and wheat against brown

AMVAC

planthoppers and caterpillars

Protects from stem borer in paddy and

Generic- Inhouse

white grub in sugarcane

Protects cotton against bollworms and

Generic- Inhouse

sucking pests

Protects cotton and other crops against

Generic- Inhouse

sucking pests

To remove primarily all weeds in non-

Generic- Inhouse

crop areas

To control grassy weeds in soybean,

Specialty- Tie up with Nissan

cotton, black and green gram

Specialty- Tie up with Nissan For control of sheath blight in paddy

Generic- Inhouse

Protects pulses against bollworms

Source: Company, MOSL

Pluto/ Xpload Insecticide

15 June 2015

Insecticides India

Exhibit 15: Key competitors of each product

Product Name

Thimet

Nuvan

Lethal

Monocil

Victor

Hijack

Hakama

Pulsor

Indan

Xplode

Sharp

Arrow

Super Star

Sargent

Flite

Phentom

Metro

Revenue share

11%

Competitor’s Products

Umet (UPL), Phorotox (PI Industries)

Doom (UPL),

Darsban (DOW), Classic (Cheminova), Chloroguard (Gharda)

Monostar (Swal), Lufos (Crystal), Phoskill (UPL)

Confidor (Bayer), Tatamida (Tata), Camida (Caminova)

Round Up (Monsanto), Glycel (Excel), Glyfos (Cheminova)

Targa Super (Dhanuka), Quinella (Cheminova), Impul (Godrej), Kodama (Chambal Fert.)

Exclusive Molecule

Padan( Corromandal), Kaldan(Dhanuka),

Missile (Crystal), proclaim (Syngenta), Emnon (Maktesham), (Cheminova)

Manik (Rallis), Rekord (Dupont), Bismark (sudarshan), Tackil (biostat), Rapid (Crystal), Polar (Gharda)

Ektara (Syngenta)

Tolstar(FMC), Marker (Dhanuka), Wanted(Gharda), Disect (UPL)

Regent SC (Bayer)

Mera 71 (Excel), Dakar (Cheminova)

Applaud (Rallis), Tribune (Crystal)

Metador (Syngenta), Dabang(Safex)

Source: Company, MOSL

Strong new product pipeline lends good growth visibility

INST currently has five in-licensed products in the pipeline and expects them to

come on stream over the next 1-2 years, which will provide further growth

momentum. INST has developed 12 new products (through reverse engineering),

some of which are already in the pipeline for new registration. One of these

products is technical of PI’s blockbuster product Nominee Gold, which is expected to

be a strong growth and profitability driver for INST. The management expects to

launch this product during FY17, which can witness significant scale-up over

subsequent 3-5 years. Going forward, the management is targeting to launch

products with broad-spectrum end-use (multi-crop/multi-pests) which will have a

larger addressable market than narrow-spectrum products.

R&D center to help develop products in USD6b off-patent opportunity

INST has developed an R&D centre at Chopanki (Rajasthan) for developing processes

for new environmental-friendly formulations; the center is accredited with NABL

(National Accreditation Board for Testing and Calibration Laboratories) and

recognized by DSIR (Department of Scientific and Industrial Research). Its team

includes 14 scientists, six engineers and five technicians. New products under

agrochemicals have to be approved by Central Insecticides Board (CIB), which

usually takes 3-5 years. Fresh product registration has to be filed under section 9:3

while registration for reverse engineered products has to be filed under section 9:4.

The total viable opportunity through patent expiry is estimated at over USD6b by

2020, which opens up a large addressable market for generic players going forward.

R&D JV with OAT Agrio (Japan) to drive launch of new patented products

INST has entered into a joint venture agreement with OAT Agrio (Japan) and has set

up a new R&D facility at Chopanki (Rajasthan). OAT Agrio Co. Ltd. (Japan) is engaged

in the manufacture and sale of agricultural chemicals and fertilizers in Japan with

USD108m in revenue (2014). OAT plans to provide the technological know-how

required in the invention of new agricultural molecules for domestic and

international markets besides managing intellectual property. The JV will enable

INST to launch new patented products in India and 14 other countries in Indian Sub-

continent, Middle East, East–African countries with exclusive distribution rights.

15 June 2015

Insecticides India

Ramp-up of technicals to give fillip to growth

Technicals contribution to revenues to increase from 16% to 19%



INST’s technicals business has posted a 38% CAGR over FY12-15, thus increasing

revenue contribution from 11% in FY12 to 16% in FY15. INST manufactures

off-patented technical products, of which ~50-60% are consumed in

-house for

manufacturing formulations and the remaining are sold in the open market.

With just 24% utilization at the Chopanki technical unit and 51% at the Dahej technical

unit, we believe INST will be able to maintain a 40% CAGR in technicals over FY15-17;

this will take contribution from technicals to 19% of total revenues.

Similarly, with minimal contribution of exports to INST’s revenue (~5%), and new

initiatives to tap export markets (INST pursuing new registrations in the Middle East

and Southeast Asia), we believe exports can be a significant growth driver.

With large manufacturing and R&D capacities in place, along with active engagements

with Japanese OEMs, we believe INST is well placed to participate in CRAMS business.

Ramp-up of technicals on cards

INST’s technicals business has posted a 38% CAGR over FY12-15, thus increasing

revenue contribution from 11% in FY12 to 16% in FY15. INST manufactures

off-patented technical products, of which ~50-60% are consumed in-house for

manufacturing formulations and the remaining are sold in the open market to B2B

formulators such as Dhanuka, PI Industries and Crystal. INST started manufacturing

technicals in FY08 from its Chopanki unit. A new unit was set up at Dahej in FY13,

which took the total capacity to 13,800MT. INST currently has more than 18

technical grade chemicals (such as glyphosate, imidacloprid, acetamiprid, and

dichlorovos) under manufacturing. With just 24% utilization at the Chopanki

technical unit and 51% at Dahej unit, we believe INST will be able to maintain 40%

CAGR in technicals over FY15-17; this will take the revenue contribution from

technicals to 19% of total revenues.

Increasing geographical penetration through foray into export markets

Though exports constitute ~50% of the Indian crop protection industry, their

contribution to INST’s revenue is minimal at ~5%. The management is pursuing

registrations in the Middle East and Southeast Asia, especially in countries such as

Zambia, Uganda, Bangladesh, Vietnam, Oman, Muscat, Saudi Arabia, Ghana, and

Singapore to tap into export markets for its products. We believe with registrations

getting approved, and manufacturing facilities in place, exports can witness

meaningful scale up over the next two to three years.

CRAMs and contract manufacturing is a medium-term opportunity

INST is all set to enter the prospective third-party manufacturing business. The

sector presents a huge opportunity and INST has been preparing for it through its

R&D capacity and focus on technology. The opportunity is attractive with increasing

presence of MNCs in India (which have the technical know-how and capability to

develop new molecules) and cost-effective manufacturing abilities. With active

engagement with several Japanese OEMs, we believe INST is well placed to

participate in CRAMS business from a medium-term perspective.

15 June 2015

Insecticides India

Aggressive capex done; ramp-up on cards

Revenues can double without resort to further capex



Having commissioned INR2.5b capex over FY11-15, INST can double revenues from

existing capacities (from INR9b to INR18b) without any major incremental capex.

With capacities in place, we believe ramp-up of revenues from existing branded

products, launch of new molecules, potential scaling up of technicals business and just

65% capacity utilization currently, INST can post 18% revenue CAGR over FY15-17.

Aggressive capex done; FY16-18 to witness ramp-up of utilization

INST forayed into technicals business to reduce dependence on imported raw

materials, capitalize on earning margins in technicals value chain as well, and for

backward integration of its formulations business. The beginning was modest

(capacity of 3,800 MTPA in Rajasthan); this small capacity enabled INST to gain

expertise in manufacturing technicals, which gave it the confidence to expand

further in the technicals business.

INST commissioned INR2.5b capex (which will deliver an asset turnover of ~4x) over

FY11-15, adding 10,000 MTPA technical capacity and 14,500 MTPA formulations

capacity at Dahej, adding 20,000 MTPA formulations capacity at Chopanki

(Rajasthan) in FY15 and adding 2600 MTPA formulations unit at Udhampur (Jammu

and Kashmir). The company faced teething problems with the Dahej technical

facility, which impacted margins in FY14. However, INST overcame those problems

and ensured higher utilization (51% in FY15) at the facility.

INST is currently utilizing capacities at 65%, which will suffice to cater growth till

FY18/19 thus entailing minimal capex. The management believes with the current

product mix and price levels, it can generate revenues of INR18b from the current

capacities (as against INR9.2b in FY15). Given the measures to ramp up revenues on

existing branded products, launch of new molecules, scaling up of technicals

business, and just 65% capacity utilization currently, we believe INST can post 18%

revenue CAGR, 36% PAT CAGR over FY15-17 along with strong FCF generation

(INR1.4b over FY15-17) and significant improvement in return ratios (RoCE and RoE

to improve from 17.8% and 20.3% to 24.9% and 24.7%, respectively, over FY15-17).

Exhibit 16: Gross block expanded by 7x over FY11-15

Gross block (INR m)

2,756

1,896

1,530

584

3,006

3,256

365

FY11

FY12

FY13

FY14

FY15

FY16E

FY17E

Source: Company, MOSL

15 June 2015

Insecticides India

Earnings to post 36% CAGR over FY15-17

Margins to improve 200 bps

Higher utilization and strong operating leverage to drive PAT growth

We expect PAT to post 36% CAGR over FY15-17, led by higher capacity utilization

and margin expansion due to higher contribution from the top 20 products.

Exhibit 17: Revenues to post 18% CAGR over FY15-17

Revenues (INR m)

11,529

8,641

5,218

6,167

9,642

10.8%

11.2%

9.5%

11.5%

13,520

Exhibit 18: EBITDA to post 30% CAGR over FY15-17

EBITDA (INR m)

Margins (%)

12.5%

13.5%

564

FY12

FY13

FY14

FY15

FY16E

FY17E

FY12

693

FY13

818

FY14

1,111

FY15

1,439

FY16E

1,822

FY17E

Source: Company, MOSL

Exhibit 19: PAT to post 36% CAGR over FY15-17

PAT (INR m)

752

549

330

353

399

1,016

Exhibit 20: Debt/Equity to improve to 0.5x by FY17

Debt Equity (x)

1.0

0.8

1.0

0.7

0.5

FY12

FY13

FY14

FY15

FY16E

FY17E

FY12

FY13

FY14

FY15

FY16E

FY17E

Source: Company, MOSL

Exhibit 21: RoCE to improve to 24.9% by FY17

RoCE (%)

20.3

16.7

16.3

20.8

24.9

Exhibit 22: Free cash generation on cards

Free cash flow (INR m)

859

588

17.8

(82)

(480)

(910)

FY12

FY13

FY14

FY15

FY16E

FY17E

FY12

FY13

FY14

(33)

FY15

FY16E

FY17E

Source: Company, MOSL

15 June 2015

Insecticides India

Valuation and view

Initiate with Buy

Capacity utilization ramp-up to drive FCF generation and return ratios

Given the measures to ramp up revenues on existing branded products, launch of

new molecules, scaling up of technicals business, and just 65% capacity utilization

currently, we believe INST can post 18% revenue CAGR, 36% PAT CAGR over FY15-17

along with strong FCF generation (INR1.4b over FY15-17) and significant

improvement in return ratios (RoCE and RoE to improve from 17.8% and 20.3% to

24.9% and 24.7%, respectively, over FY15-17.

With significant improvement in metrics, we believe valuations at 12.9x FY16 and

9.5x FY17 are attractive as compared with peer group average of 26x FY16 and 21x

FY17, warranting a re-rating. We initiate coverage with a ‘Buy’ rating with a PT of

INR800 (15x FY17).

Exhibit 23: Price to Earnings (one year forward)

11.7

12.9

1.0

0.0

P/E (x)

5 Yrs Avg(x)

Exhibit 24: Price to book (one year forward)

3.0

2.0

1.3

1.7

P/B (x)

5 Yrs Avg(x)

Source: Company, MOSL

Exhibit 25: Peer comparison

Company Name

CMP (INR)

Market

Cap (INR b)

FY15

Insecticides India Ltd

Bayer CropScience Ltd/India

PI Industries Ltd

Rallis India Ltd

Dhanuka Agritech Ltd

Average

509

3,718

609

226

593

136

17.6

35.6

33.8

27.9

31.3

PE (x)

FY16E

12.7

29.6

27.3

22.5

23.9

25.8

FY17E

9.4

24.8

21.1

18.4

19.7

21.0

FY15

20.3

30.9

20.5

28.5

25.1

ROE (%)

FY16E

23.3

19.6

29.1

22.1

27.2

24.5

FY17E

25.2

20.3

29.5

23.1

26.8

24.9

Source: Bloomberg, MOSL

15 June 2015

Insecticides India

Key risks



Uncertain monsoon:

Unfavorable monsoon is the biggest risk for the domestic

agrochemical sector. Delayed or deficient rainfall results in sales return and,

thus, negatively impacts growth. Similarly, unseasonal rainfall can damage

standing crops, resulting in income loss for farmers.

Lower prices of agricultural produce:

Decline in prices of agricultural

commodities or lower MSP (minimum support price) can reduce farm incomes

and, consequently, demand for agri-inputs. Unlike fertilizers, prices of

agrochemicals are not subsidized and farmers may choose to decrease their

purchase of agrochemicals to lower their production cost.

Delay in getting approvals for new products:

Registration of pesticides is a

time-consuming process in India. It can take 2-4 years to launch a new molecule.

Delay in getting approvals could lead to loss of potential profit opportunity in

that product.

Forex fluctuations:

Imported raw materials constitute 30% of the total raw

materials, thus exposing it to fluctuations in foreign exchange. The management

plans to increase exports, which will act as a natural hedge.

15 June 2015

Insecticides India

Management overview

Exhibit 26: Management structure

Source: Company, MOSL

Hari Chand Aggarwal, Chairman

INST is headed by Mr. Hari Chand Aggarwal, who is the chairman of the board. He

has over three decades of experience in the field of agrochemicals. He has held

prestigious positions in various industry bodies. He was the president of North

Indian Pesticides Manufacturing Association for five terms and was also the director

of Crop Care Federation of India.

Rajesh Aggarwal, Managing Director

Mr. Rajesh Aggarwal is a commerce graduate and possesses a diploma in Marketing

& Formulation of Pesticides. In 1993, he joined his family's business as marketing In

charge. Combining this work experience with state-of-the-art technologies, he took

the additional responsibility of production and allied fields. He is currently the

managing director of INST.

15 June 2015

Insecticides India

Industry overview

Strong growth potential for Indian agrochemical sector

India’s crop protection industry is estimated at USD4.3b, of which domestic industry

forms 52% (USD2.3b) and exports form the balance 48% (USD2b). According to

CRISIL, the industry is expected to post 12% CAGR over FY14-19 to reach USD7.5b.

Domestic/exports are expected to grow at 8% (to USD3.3b) and 16% (to USD4.2b).

Given the minimal pesticide penetration in India (0.75 kgs/Ha as against global

average of 10kgs/Ha), growth prospects for Indian industry are strong. Over 400

companies operate in the domestic market and can be broadly categorized under

three heads: a) MNCs—30% market share, b) Indian organized—50% market share,

and c) unorganized—20% market share.

Exhibit 27: India’s agro-chem market valued at USD4.3b

Exhibit 28: Pesticide consumption lowest in India

Pesticides consumption (Kgs/Ha)

Domestic

market,

52%

Exports,

48%

0.75

India

Source: Company, MOSL

France Korea

USA

Japan

China Taiwan

Source: Company, MOSL

Exhibit 29: Indian organized sector dominates the domestic agro-chem market

Indian

Unorganized, 20%

Indian Organized,

50%

MNCs, 30%

Source: Company, MOSL

Key growth drivers



Growing food demand with limited land availability will lead to higher focus on

crop yields. Escalating labor costs are driving demand for herbicides (as against

manual weed cutting), thus ensuring higher agrochemicals. India’s pesticide

consumption (0.75 Kgs/Ha) is amongst the lowest gloablly.

Strong export opportunity: Low-cost manufacturing, availability of technically

skilled manpower, seasonal domestic demand, available capacity, better price

realization globally and strong presence in generic pesticide manufacturing.

Agrochemicals worth USD6.3b are expected to be taken off-patent list by 2020;

this presents a large opportunity for Indian companies to participate in global

generics business.

15 June 2015

Insecticides India

Financials and valuations

Standalone - Income Statement

Y/E March

Total Income from Operations

Change (%)

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY12

5,218

15.9

4,654

89.2

564

10.8

540

111

429

23.1

330

2.5

6.3

FY13

6,167

18.2

5,474

88.8

693

11.2

635

174

463

23.8

353

7.0

5.7

FY14

8,641

40.1

7,823

90.5

818

9.5

751

269

486

17.9

399

13.0

4.6

FY15

9,642

11.6

8,531

88.5

1,111

11.5

142

969

332

642

14.5

549

37.4

5.7

FY16E

11,529

19.6

10,090

87.5

1,439

12.5

176

1,263

329

941

188

20.0

753

37.2

6.5

(INR Million)

FY17E

13,520

17.3

11,698

86.5

1,822

13.5

191

1,631

283

1,356

339

25.0

1,017

35.2

7.5

Standalone - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Deferred Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans&Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Appl. of Funds

FY12

127

1,695

1,822

1,586

3,436

584

513

920

3,771

2,024

892

178

677

1,767

1,495

272

2,004

3,436

FY13

127

1,995

2,122

102

2,113

4,337

1,530

127

1,404

449

4,469

2,253

1,165

1,004

1,984

1,734

250

2,485

4,337

FY14

127

2,339

2,466

133

2,580

5,178

1,896

191

1,706

537

111

5,560

3,117

1,279

1,075

2,736

2,571

165

2,825

5,178

FY15

127

2,799

2,926

156

2,985

6,067

2,756

332

2,424

111

6,673

3,914

1,668

1,026

3,141

2,879

262

3,532

6,067

FY16E

190

3,474

3,664

156

2,635

6,455

3,006

508

2,498

111

7,411

4,187

1,762

232

1,231

3,564

3,468

3,847

6,455

(INR Million)

FY17E

190

4,392

4,582

156

2,285

7,023

3,256

699

2,557

111

8,489

4,859

2,066

1,477

4,133

4,024

109

4,356

7,023

15 June 2015

Insecticides India

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

FCF per share

Return Ratios (%)

RoE

RoCE

Working Capital Ratios

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Creditor (Days)

Working Cap. Turnover (Days)

Leverage Ratio (x)

Current Ratio

Interest Cover Ratio

Debt/Equity

FY12

17.4

27.9

95.8

2.5

11.1

FY13

18.6

32.4

111.6

3.0

12.6

FY14

21.0

36.7

129.6

3.0

11.1

24.3

13.9

3.9

1.0

10.6

0.6

-6.5

17.4

16.3

1.7

131.6

175

116

2.0

1.0

FY15

28.8

54.4

153.8

2.5

6.7

17.7

9.4

2.2

0.9

8.2

0.5

-2.6

20.3

17.8

1.6

148.2

162

131

2.1

1.0

FY16E

39.6

48.8

192.6

3.5

10.3

12.9

10.4

2.6

0.7

6.0

0.7

45.1

22.8

20.8

1.8

132.6

164

114

2.1

0.7

FY17E

53.5

63.5

240.9

4.5

9.8

9.5

8.0

2.1

0.6

4.6

0.9

30.9

24.7

24.9

1.9

131.2

164

115

2.1

0.5

-71.8

19.6

20.3

1.5

141.6

173

128

2.1

0.9

0.6

-37.8

17.9

16.7

1.4

133.4

170

144

2.3

1.0

Standalone - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(inc)/dec in FA

Free Cash Flow

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

FY12

429

111

-87

-839

-362

-359

-551

-910

-550

1,198

-111

-32

1,049

140

178

FY13

464

117

-107

-534

-3

-11

-13

-467

-480

-465

-119

-32

347

-131

178

FY14

487

157

-84

-251

375

377

-459

-82

-111

-567

-159

-38

234

FY15

642

142

332

-93

-732

290

-323

-33

-323

405

-332

-37

-25

FY16E

941

176

329

-188

-148

1,109

-250

859

-250

-350

-329

-77

-693

166

232

(INR Million)

FY17E

1,356

191

283

-339

-653

838

-250

588

-250

-350

-283

-99

-732

-144

232

15 June 2015

Our reports on Agri Sector

Insecticides India

15 June 2015

Insecticides India

NOTES

15 June 2015

This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed

Insecticides India

by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not

constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for

public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal

recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider

whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as

up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.

MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a

some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or

its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this

material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other

parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.

MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders,

and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary

trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing

among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position

in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation

or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with

respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations

made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as

such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set

of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.

Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or

employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of

its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is

based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions

provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or

summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to

update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way

responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time,

any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.

The recipients of this report should rely on their own investigations.

This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on

this report or for any necessary explanation of its contents.

Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any

compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.

Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.

Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report

MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities

mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the

report.

Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412

There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be

directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation

of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues

Disclosure of Interest Statement



Analyst ownership of the stock



Served as an officer, director or employee

INSECTICIDES INDIA

Disclosures

A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes

Regional Disclosures (outside India)

For U.S.

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,

regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.

Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In

addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the

United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or

intended for U.S. persons.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional

investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major

institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the

"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning

agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this

chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,

and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors

Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to

accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.

In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Anosh Koppikar

Kadambari Balachandran

Email : anosh.Koppikar@motilaloswal.com

Email : kadambari.balachandran@motilaloswal.com

Contact : (+65)68189232

Contact : (+65) 68189233 / 65249115

Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931

For Singapore

Motilal Oswal Securities Ltd

15 June 2015

Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025

Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com