RESULTS REVIEW 1QFY19 09 AUG 2018

Insecticides India
BUY
INDUSTRY AGROCHEMICAL Striking the right chord
Insecticides India’s (INST) 1QFY19 revenue was at Rs too remains lacklustre with total area sown being 2%
CMP (as on 09 Aug 2018) Rs 776
3.1bn (up 2.3% YoY). Revenue growth was muted lower than same time last year. IMD predicted that
Target Price Rs 937 due to lower concentration of Generic products in rainfall during the second half of the current
Nifty 11,470 the mix. Change in the product mix led to strong monsoon season will be 95% of the average
EBITDA margin of 17.4% (up 122 bps), and EBITDA (deficiency of -5%).
Sensex 38,024
KEY STOCK DATA coming in at Rs 556mn (up 10.0% YoY). PAT came in ▪ INST has additional levers like (1) Focus on high-growth
Bloomberg INST IN at Rs 340mn, with a higher tax rate of 29.3% (against and high-margin products (Navratna, Super 11), (2)
No. of Shares (mn) 21 27.6% in 1QFY18). INST has signed agreements with Nihon (Japan) and
MCap (Rs bn) / ($ mn) 16/233 ▪ INST is targeting higher sales from new products and MPM (USA) for marketing their products, and (3)
has a strong product pipeline. The management Entered into a 50-50 JV with OAT Agrio (Japan) to
6m avg traded value (Rs mn) 15
expects to dole out 6-7 new products every year and capitalise on molecules going off-patent, and (4) A
STOCK PERFORMANCE (%)
has a strong focus on R&D. Going ahead, we expect post-emergence herbicide for paddy (Green Label) (5)
52 Week high / low Rs 966/642 Strong distributor (+3k) and retail network (+60k).
contribution from the generic products to lower as the
3M 6M 12M management focuses on the branded/B2C business.
Absolute (%) 3.6 (4.6) (0.1) ▪ Focus on introduction of specialty products and
Relative (%) (4.1) (16.4) (19.7)
▪ August started on a weak note with expansion in export markets is likely to strengthen
rainfall deviation rising to -10% of normal as of 8 INST’s position against peers. Maintain BUY with a TP
SHAREHOLDING PATTERN (%)
August from -6% of normal at the end of July. Sowing of Rs 937/sh (17x Jun’20 EPS).
Promoters 68.75
FIs & Local MFs 6.75
FPIs 2.79
Public & Others 21.71 Financial Summary (Standalone)
Source : BSE Year Ending March (Rs mn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%) FY18 FY19E FY20E FY21E
Net Sales 3,189 3,119 2.3 1,689 88.8 10,733 11,803 12,884 13,972
EBITDA 556 505 10.0 187 197.8 1,478 1,589 1,834 1,993
Archit Joshi APAT 340 305 11.4 77 342.2 840 933 1,111 1,225
archit.joshi@hdfcsec.com Diluted EPS (Rs) 16.4 14.8 11.4 3.7 342.2 40.6 45.1 53.8 59.3
+91-22-6171-7316
P/E (x) 19.2 17.3 14.5 13.2
Nilesh Ghuge EV / EBITDA (x) 11.6 10.5 8.9 8.0
nilesh.ghuge@hdfcsec.com RoE (%) 16.6 15.8 16.1 15.3
+91-22-6171-7342 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

Quarterly Financials Snapshot (Standalone)

(Rs mn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%)
Revenue growth was muted Net Sales 3,189 3,119 2.3 1,689 88.8
Material Expenses 1,877 2,050 (8.4) 1,514 24.0
due to change in product mix.
Stock In Trade 326 154 111.7 (348) (193.6)
Lower sales from Generic
Employee Expenses 149 127 17.7 116 28.1
(high volume, low margin) Other Expenses 282 283 (0.5) 221 27.5
products impacted Net sales. EBITDA 556 505 10.0 187 197.8
Depreciation 48 43 12.3 47 1.7
EBIT 508 462 9.8 139 264.6
Other Income (Including EO Items) 1.8 6.1 (70.2) 3.6 (49.9)
Interest Cost 29 47 (38.4) 28 3.5
PBT 480 422 14.0 115 318.2
Lower interest costs came in Tax 141 117 20.6 38 269.5
due to focus on debt RPAT 340 305 11.4 77 342.2
reduction. EO (Loss) / Profit (Net Of Tax) - - - - -
APAT 340 305 11.4 77 342.2
AEPS (Rs/sh) 16.4 14.8 11.4 3.7 342.2
Source: Company, HDFC sec Inst Research

Margin Analysis
(% Of Net Sales) 1QFY19 1QFY18 YoY (bps) 4QFY18 QoQ (bps)
Material Expenses As % Of Net Sales 58.9 65.7 (687) 89.6 (3,074)
Stock In Trade As % Of Net Sales 10.2 4.9 528 (20.6) 3,081
Employee Expenses As % Of Net Sales 4.7 4.1 61 6.9 (221)
Other Expenses As % Of Net Sales 8.8 9.1 (24) 13.1 (425)
Improvement in Gross margin
EBITDA Margin (%) 17.4 16.2 122 11.0 638
and EBITDA margin on
EBIT Margin (%) 15.9 14.8 109 8.2 768
account of change in product
Net Profit Margin (%) 10.7 9.8 88 4.5 611
mix.
Tax Rate (%) 29.3 27.6 161 33.1 (385)
Source: Company, HDFC sec Inst Research

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

Quarterly Performance
Revenue contribution from Revenues Mix Standalone Performance
Formulations have remained Formulations Technicals Net Sales YoY Growth (RH) EBITDA Margins (RH)
steady at 69% of total sales. 100%
4,500 Rs mn % 40
90% 17 17 14 12 16 14 15 16 14
31 26 26 4,000
80% 39 35 31 30
45 41
3,500
70% 20
60% 3,000
2,500 10
50%
40% 83 83 86 88 84 86 85 84 86 2,000 -
69 74 74 65 69 1,500
30% 55 61 59 -10
20% 1,000
10% 500 -20
0% - -30
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Q4FY16
1QFY17
2QFY17
3QFY17
Q4FY17
1QFY18
2QFY18
3QFY18
Q4FY18
1QFY19

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Q4FY16
1QFY17
2QFY17
3QFY17
Q4FY17
1QFY18
2QFY18
3QFY18
Q4FY18
1QFY19
Increased focus on high- Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
growth products and tie-up
with MNC’s will lead to better
EBITDA margins, going
Formulation Business Performance Technical Business Perfomance
forward
Formulations YoY Growth (RH) Technicals YoY Growth (RH)
4,500 Rs mn % 50.0 1,400 Rs mn % 250.0
4,000 40.0
1,200 200.0
3,500 30.0
1,000 150.0
3,000 20.0
2,500 10.0 800 100.0
2,000 - 600 50.0
1,500 -10.0
400 -
1,000 -20.0
500 -30.0 200 -50.0
- -40.0 - -100.0
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Q4FY16
1QFY17
2QFY17
3QFY17
Q4FY17
1QFY18
2QFY18
3QFY18
Q4FY18
1QFY19

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Q4FY16
1QFY17
2QFY17
3QFY17
Q4FY17
1QFY18
2QFY18
3QFY18
Q4FY18
1QFY19
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

Assumptions
Higher growth from Revenue Growth (%) FY16 FY17 FY18 FY19E FY20E FY21E
formulations expected. Navratna + Super 11 7.0 7.5 2.7 6.2 8.0 7.0
Other Branded Sale 22.6 2.5 10.0 12.0 15.0 13.0
Technical (22.9) (7.5) (6.3) (0.2) 2.0 3.7

Gross Profit Margins (%) 31.6 25.3 28.9 28.3 28.9 28.9
Branded Formulation (GPM %) 31.0 30.0 32.0 30.5 31.0 31.0
Institutional Sales (GPM %) 33.8 7.2 15.1 18.0 18.0 17.5
Source: Company, HDFC sec Inst Research
No change in estimates as we
remain watchful on the Indian Change In Estimates
Monsoons. Rs mn FY19 Old FY19 New YoY Gr (%) FY20 Old FY20 New YoY Gr (%)
Net Sales 11,803 11,803 0.0 12,884 12,884 0.0
EBIDTA 1,589 1,589 0.0 1,834 1,834 0.0
APAT 933 933 0.0 1,111 1,111 0.0
AEPS (Rs) 45.1 45.1 0.0 53.8 53.8 0.0
Source: HDFC sec Inst Research

Peer Set Comparison

Mcap CMP TP EPS (Rs/sh) P/E (x) ROE (%)
Rating*
(Rs bn) (Rs/sh) (Rs/sh) FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E
AGROCHEMICALS
UPL 324 636 BUY 700 44.8 53.6 60.7 14.2 11.9 10.5 22.7 22.6 21.5
PI Industries 106 780 BUY 874 30.1 34.9 39.1 25.9 22.3 19.9 19.8 19.4 18.4
Rallis India 40 206 BUY 275 9.8 11.8 13.9 21.0 17.5 14.8 15.6 17.4 18.4
Dhanuka Agritech 29 589 BUY 676 28.0 30.7 35.0 21.0 19.2 19.3 20.1 18.9 18.5
Insecticides India 16 776 BUY 937 45.1 53.8 59.3 17.2 14.4 13.1 15.8 16.1 15.3
Source: Company, HDFC sec Inst Research,

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

Income Statement (Standalone) Balance Sheet (Standalone)

(Rs mn) FY17 FY18 FY19E FY20E FY21E (Rs mn) FY17 FY18 FY19E FY20E FY21E
Net Revenues 9,942 10,733 11,803 12,884 13,972 SOURCES OF FUNDS
Growth (%) 0.8 8.0 10.0 9.2 8.4 Share Capital 207 207 207 207 207
Material Expenses 5,994 6,926 7,716 8,381 9,114 Reserves 4,439 5,269 6,152 7,214 8,389
Traded Goods 1,429 708 743 781 820 Total Shareholders’ Funds 4,646 5,476 6,359 7,420 8,595
Employee Expenses 455 506 552 601 656 Long-term Debt 307 176 143 128 116
Other Operating Expenses 951 1,114 1,203 1,287 1,390 Short-term Debt 2,060 968 829 746 806
EBITDA 1,114 1,478 1,589 1,834 1,993 Total Debt 2,366 1,144 971 874 922
EBITDA Margin (%) 11.2 13.8 13.5 14.2 14.3 Long-term Provisions & Others 5 6 6 6 6
EBIDTA Growth (%) 24.1 32.7 7.5 15.4 8.7 Net Deferred Tax Liability 89 188 188 188 188
Depreciation 160 170 202 208 217 TOTAL SOURCES OF FUNDS 7,106 6,814 7,524 8,489 9,711
EBIT 954 1,308 1,387 1,626 1,775 APPLICATION OF FUNDS
Other Income (Including EO Items) 68 32 34 36 36 Net Block 1,858 2,357 2,490 2,783 3,215
Interest 202 159 107 96 87 CWIP 569 127 250 250 250
PBT 820 1,181 1,313 1,565 1,725 Investments 111 163 163 163 163
Tax 226 341 381 454 500 LT Loans & Advances - - - - -
RPAT 594 840 933 1,111 1,225 Other Non-current Assets 94 159 159 159 159
Minority Interest - - - - - Total Non-current Assets 2,632 2,806 3,062 3,355 3,787
EO (Loss) / Profit (Net Of Tax) - - - - - Inventories 4,258 4,073 4,365 4,765 5,168
APAT 594 840 933 1,111 1,225 Debtors 2,116 2,348 2,582 2,819 3,057
APAT Growth (%) 11.4 41.4 11.0 19.2 10.2 Other Current Assets 686 573 573 573 573
AEPS 28.7 40.6 45.1 53.8 59.3 Cash & Equivalents 92 201 371 652 1,049
AEPS Growth (%) 11.4 41.4 11.0 19.2 10.2 Total Current Assets 7,152 7,195 7,892 8,809 9,846
Source: Company, HDFC sec Inst Research Creditors 1,987 2,434 2,676 2,921 3,168
Other Current Liabilities & Provision 691 753 753 753 753
Total Current Liabilities 2,678 3,187 3,430 3,675 3,922
Net Current Assets 4,474 4,008 4,462 5,134 5,924
TOTAL APPLICATION OF FUNDS 7,106 6,814 7,524 8,489 9,711
Source: Company, HDFC sec Inst Research

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

Cash Flow (Standalone) Key Ratios (Standalone)

(Rs mn) FY17 FY18 FY19E FY20E FY21E Ratios FY17 FY18 FY19E FY20E FY21E
Reported PBT 820 1,181 1,313 1,565 1,725 PROFITABILITY (%)
Non-operating & EO Items 2 (1) (34) (36) (36) GPM 25.3 28.9 28.3 28.9 28.9
Interest Expenses 202 159 107 96 87 EBITDA Margin 11.2 13.8 13.5 14.2 14.3
Depreciation 160 170 202 208 217 EBIT Margin 9.6 12.2 11.7 12.6 12.7
Working Capital Change (989) 582 (284) (391) (394) APAT Margin 6.0 7.8 7.9 8.6 8.8
Tax Paid (170) (262) (381) (454) (500) RoE 13.7 16.6 15.8 16.1 15.3
OPERATING CASH FLOW ( a ) 24 1,829 924 988 1,099 Core RoCE 10.6 13.6 14.3 15.4 15.3
Capex (144) (282) (500) (500) (650) RoCE 11.2 13.7 14.1 14.7 14.1
Free Cash Flow (FCF) (120) 1,547 424 488 449 EFFICIENCY
Tax Rate (%) 27.5 28.9 29.0 29.0 29.0
Investments - - - - -
Asset Turnover (x) 1.5 1.5 1.6 1.6 1.5
Non-operating Income 68 32 34 36 36
Inventory (days) 156 139 135 135 135
Other (61) (9) 2 - -
Debtors (days) 78 80 80 80 80
INVESTING CASH FLOW ( b ) (136) (258) (464) (464) (614)
Other Current Assets (days) 25 19 18 16 15
Debt Issuance/(Repaid) 543 (1,095) (172) (97) 48
Payables (days) 73 83 83 83 83
Interest Expenses (207) (160) (107) (96) (87)
Other Current Liab & Provns (days) 25 26 23 21 20
FCFE 216 293 144 295 410
Cash Conversion Cycle (days) 161 136 132 132 132
Share Capital Issuance - - - - - Debt/EBITDA (x) 2.1 0.8 0.6 0.5 0.5
Dividend - (50) (50) (50) (50) Net D/E (x) 0.5 0.2 0.1 0.0 (0.0)
FINANCING CASH FLOW ( c ) 335 (1,304) (329) (243) (89) Interest Coverage 4.7 8.2 12.9 16.9 20.5
NET CASH FLOW (a+b+c) 223 267 130 281 397 PER SHARE DATA (Rs/sh)
EO Items, Others - - - - - EPS 28.7 40.6 45.1 53.8 59.3
Closing Cash & Equivalents 92 201 371 652 1,049 CEPS 36.5 48.9 54.9 63.8 69.8
Source: Company, HDFC sec Inst Research DPS 2.0 2.0 2.0 2.0 2.0
BV 224.8 264.9 307.7 359.0 415.9
VALUATION
P/E (x) 27.0 19.1 17.2 14.4 13.1
P/BV (x) 3.5 2.9 2.5 2.2 1.9
EV/EBITDA (x) 16.4 11.5 10.5 8.9 8.0
OCF/EV (%) 0.1 10.8 5.6 6.1 6.9
FCF/EV (%) (0.7) 9.1 2.5 3.0 2.8
FCFE/MCAP (%) 1.3 1.8 0.9 1.8 2.6
Dividend Yield (%) 0.3 0.3 0.3 0.3 0.3
Source: Company, HDFC sec Inst Research

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

RECOMMENDATION HISTORY
Date CMP Reco Target
Insecticides TP
11-Aug-17 738 BUY 800
1,100
21-Nov-17 845 NEU 815
1,000 9-Jan-18 852 NEU 852
13-Apr-18 740 BUY 927
900
29-May-18 845 BUY 914
800 9-Jul-18 669 BUY 914
9-Aug-18 776 BUY 937
700

600
Rating Definitions
500 May-18 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Jun-18

Aug-18
Oct-17

Mar-18

Apr-18

Jul-18
Dec-17
Nov-17
Aug-17

Sep-17

Feb-18
Jan-18

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

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

Disclosure:
We, Archit Joshi, MBA & Nilesh Ghuge, MMS, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. 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) in this report.
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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. Further Research Analyst or his relative or HDFC Securities
Ltd. or its associate does not have any material conflict of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

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 INSECTICIDES INDIA : RESULTS REVIEW 1QFY19

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel,Mumbai - 400 013
Board : +91-22-6171 7330www.hdfcsec.com

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