India Pesticides IPO review (Apply)

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Review By Dilip Davda on June 18, 2021

•    IPL is one of the fastest-growing agrochemical company with over 56% export revenue.
•    The company has posted spectacular performance for the last three fiscals.
•    It gives a major thrust of R & D based customer-centric products.
•    It's a regular dividend-paying company for the last three fiscals.
•    Based on financial parameters, the issue appears reasonably priced.

ABOUT COMPANY:
India Pesticides Ltd. (IPL) is an R&D driven agrochemical manufacturer of Technicals with a growing Formulations business. It is one of the fastest-growing agrochemicals company in terms of volume of Technicals manufactured. The company has recorded 37.17% year-on-year growth in Technicals manufacturing (by volume) between Fiscal 2020 and Fiscal 2021, reaching more than 75% plant operating rate. (Source: F&S Reports).

The Company manufactured 15,003 MT of Technicals in Fiscal 2021. IPL is the sole Indian manufacturer of five Technicals and among the leading manufacturers globally for Captan, Folpet and Thiocarbamate Herbicide, in terms of production capacity (Source: F&S Reports). Since commencing its operations in 1984, the company has diversified into manufacturing herbicide and fungicide Technicals and active pharmaceutical ingredients ('APIs'). It also manufactures herbicide, insecticide and fungicide Formulations. The company has a strategic focus on R&D and its R&D capabilities include two well-equipped in-house laboratories registered with the DSIR.

The company's efforts are led by a dedicated R&D team that comprises PhDs, masters graduate in chemistry and biotechnological engineer. Its R&D efforts have led to the development of processes to manufacture three generic off-patent Technicals since Fiscal 2018 and are currently in the process of developing processes for certain Technicals, including two fungicides, two herbicides, two insecticides and two intermediates.

IPL's Technicals are primarily exported and its revenue generated from exports contributed to 56.71% of revenue from operations in Fiscal 2021. As of March 31, 2021, its Technicals are exported to over 25 countries including Australia and other countries in North and South America, Europe, Asia and Africa. The company's Formulations products are primarily sold domestically through its extensive network of dealers and distributors. It has a diverse customer base that includes crop protection product manufacturing companies, such as, Syngenta Asia Pacific Pte. Ltd, UPL Limited, ASCENZA AGRO, S.A., Conquest Crop Protection Pty Ltd, Sharda Cropchem Limited and Stotras Pty Ltd. The company has established relationships with customers many of whom have been associated with it for over 10 years.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 80.00 cr.) and general corpus fund, IPL is coming out with a maiden IPO to mobilize Rs. 800.00 cr. (total 27027200 shares) combo book building offers having fresh equity issue as well as offer for sale (OFS). The company has fixed the price band of Rs. 290 - Rs. 296 for this issue for the equity shares having face value of Re. 1 per share. At the upper market cap, it will issue approx. 3378400 fresh equity shares (for Rs. 100 cr.) along with OFS for 23648800 equity shares (for Rs. 700 cr.). The issue opens for subscription on June 23, 2021, and will close on June 25, 2021. Minimum application is to be made for 50 shares and in multiples thereon, thereafter.

The issue constitutes 23.47% of the post issue paid-up equity capital of the company. Post allotment, shares will be listed on BSE and NSE.

Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd. and JM Financial Ltd. while KFin Technologies Pvt. Ltd. is the registrar to the issue.

Having issued initial equity at par, the company raised further equity capital (based on FV of Re. 1 per share) in the price range of Rs. 8.00 to Rs. 33.70 per share between March 2007 and January 2021. It has issued bonus shares in the ratio of 3 for 1 in September 1995, 2 for 1 in September 2003, 1 for 2 in January 2005 and 5 for 2 in January 2021. The average cost of acquisition of shares by the promoters is NIL and Rs. 0.03 and selling stakeholders are ranging from Rs. 0.00 to Rs. 0.94 per share.  

Post issue, company's current paid-up equity capital of Rs. 11.18 cr. will stand enhanced to Rs. 11.52 cr. Based on the upper price band, IPL is looking for a market cap of Rs. 3408.84 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, IPO has posted turnover/net profit of Rs. 346.04 cr. / Rs. 43.92 cr. (FY19), Rs. 489.73 cr./ Rs. 70.80 cr. (FY20) and Rs. 655.38 cr. / Rs. 134.51. (FY21). Thus it has posted spectacular performance and outperforms year after year.

For the last three fiscals, the company has posted an average Eps of Rs. 8.81 and an average RoNW of 30.37%. The issue is priced at a P/BV of 8.47 based on its NAV of Rs. 34.94 and at a P/BV of 6.97 based on its NAV of Rs. 42.50. (at the upper price band).

If we attribute FY21 earnings on fully diluted equity post issue, then the asking price is at a P/E of 25.34 against an industry average of 47.44. Thus issue appears reasonably priced.

COMPARISON WITH LISTED PEERS:
As per the offer document, IPL has shown Dhanuka Agri, Bharat Rasayan, UPL Ltd., Rallis India, PI Industries, Sumitomo Chemical and Atul Ltd. as its listed peers. They are currently quoting at a P/E of 21.41, 33.97, 271.12, 30.19, 60.13, 54.73 and 41.85 (as of June 18, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
The company has paid a dividend at the rate of 20% for FAY19 and FY20 and at 110% for FY 21. For the current fiscal, it has already paid a dividend at 0.32% till the filing of RHP. It will follow a prudent dividend policy post listing.

MERCHANT BANKER'S TRACK RECORDS:
The two BRLMs associated with the offer have handled 25 public issues in the past three years out of which 11 issues closed below the offer price on the listing date.

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