PI Industries Ltd

Sector: Agrichemical/ Small cap

Initiating Coverage 21 January 2013

Sensex Nifty
20,039 6,064 Price: INR 636 Target Price: INR 796 BUY
Background: PI Industries’ is one of the leading players in the Crop protection industry. Company largely operates under two main segments a) agriculture
inputs, b) custom synthesis and contract manufacturing. Company has a niche portfolio of 26 products, which includes 5-6 in-licensed products in tie up with
MNCs such as Bayer, BASF & Kumiai chemicals. Company manufactures products from its three formulations & two technical facilities based in Jammu and
Panoli. PI has a strong distribution network of 8,000 dealers / distributors; 35,000 retailers and 27 stock points. Company derives 80% of its agrichemical
revenue from its top 10 products. Its key products are Nominee Gold, a rice herbicide which contributes ~INR1bn to PI revenue .

52 Week High/Low INR 717/420 Blockbuster product portfolio & Strong product pipeline
Bloomberg code PI IN Company derives 80% of its agrichemical revenue from its top 10 products. Its key product is Nominee Gold,
Reuters code PIIL.BO a rice herbicide which contributes ~INR1bn to PI revenue. Nominee Gold is an in-licensed product launched
Issued Equity in FY10 in tie up with Kumiai Chemicals. The other key products are Biovita (plant nutrient), Roket and
25.17 Foratox (multi-crop insecticide). Biovita contributes INR0.5bn to PI revenue. To give further boost to its
(shares in mn)
Mkt. Cap in INR mn INR 16,006 revenue growth, the company launched two in-licensed products, i.e. Voltage in tie up with Bayers and Clutch
Mkt. Cap in mn USD $ 297 in tie up with BASF in FY12. In addition, the company has also filed for three molecules and signed four new
Avg. Daily Vol. (‘000) 27.1
agreements with respective patent holders to evaluate these products in India. We expect PI Industries’
revenue growth momentum to continue, supported by the blockbuster product portfolios and strong product
Avg. Daily Vol. (mn) INR 17.2/$ 0.3
pipeline.

Shareholding Dec11 Sep12 Dec12 Strong

Sep12 order book provides revenue visibility
PI Industries’ leverages its strong research and manufacturing capability by providing Custom Synthesis and
Promoters(%) 63.35 63.35 63.65 63.35
CRAMS to MNC clients. Currently, the company has an order book position of ~US$318mn, ~ 2X Company’s
FII (%) 7.67 9.21 15.03 9.21
revenue (FY12) which provides revenue visibility; long-term contracts are executable within 3-4 years.
DII (%) 1.60 1.34 3.22 Currently,
1.34 PI Industries’ has 13-14 molecules in the custom synthesis businesses that have reached
Others (%) 27.08 26.10 18.40 commercial-scale,
26.10 and at any given point, there would be 25 - 30 molecules in the R&D, pilot / kilo lab. In
Pledge (% of general, there is a 40-50% probability of R&D molecules attaining commercial-scale.
promoter 0.00 0.00 0.00 0.00
holding) Revenues are expected to grow at CAGR of 21.4% between FY12-15
We expect PI Industries’ revenue to grow at CAGR of 21.4% between FY12-15 and the custom synthesis
business and novel agrichemicals will aid the growth. Management has guided a 30-35% growth in custom
Performance% 1M 3M 12M
synthesis business over next 2 years.
PI Industries 9.86 20.55 35.05
Sensex 3.48 6.64 21.81 Outlook & Valuation
PI Industries’ unique business model, strong relationship with global innovators, good revenue visibility in
CSM business and well spread distribution network make it a compelling investment case. We initiate
800 120
coverage on PI Industries’ with a Buy rating and with a target INR 796, valuing the stock at 12XFY15E EPS,
700
100 EV/EBIDTA at 7.9XFY15E and P/BV of 3XFY15E. Risk: Pesticide demand is linked to monsoons and in
600
80 years of poor monsoons demand goes down drastically. Genetically modified crops are made with inbuilt
500
resistance towards pest that reduces the demand for agrichemicals. Execution delay in setting up new
400 60
capacities would impact the growth in the custom synthesis business
300
40
200 Valuation Summary
20
100 Y/E March ( INRmn) FY12 FY13E FY14E FY15E
0 0 Revenue 8,775.3 10,956.3 13,229.5 15,704.1
EBIDTA 1,386.6 1,866.3 2,301.9 2,826.7
PAT 1,005.4 1,055.1 1,337.5 1,670.6
EPS 40.1 41.9 53.1 66.4
PI Industries Relative SENSEX (RHS) EPS growth (%) 40.1 4.5 26.8 24.9
FCF / Share 0.9 9.1 18.1 12.4
PE 15.8 15.2 12.0 9.6
Sathyanarayanan M +91-44-30007361 P/ BV 5.0 3.9 3.0 2.4
sathyanarayananm@chola.murugappa.com EV / EBIDTA 13.2 9.9 8.0 6.5
EV / Sales 2.1 1.7 1.4 1.2
Dividend Yield (%) 0.8 0.8 1.0 1.3
ROCE (%) 29.4 26.4 27.9 29.2
ROE (%) 38.0 28.9 28.6 28.0
Net Debt / Equity 0.8 0.6 0.4 0.3

1
 Industry overview:

Pesticide Consumption in India

The History of Pesticide production in India dates back to 1952 with setting up a plant for the production of Benzene
Hexachloride (BHC) near Kolkata. From there on, the production of technical grade pesticides in India saw a steady growth
from 5,000MT in 1958 to 72,130 MT in 1992 at a CAGR of 8.2%. The usage of pesticides remained high in the initial years
of green revolution and pesticide consumption peaked in 1989. Between, 1991 to 2001 consumption of pesticides de-grew
by 4.9% from 72,130MT to 43,590MT. De-growth in pesticide consumption was primarily attributed to the ban on BHC by
Indian government in April 1997, which accounted for ~30% of India’s total pesticide consumption.

Chart 1: Consumption of Technical grade Pesticides in India

80.00 0.60
70.00 0.50
60.00
50.00 0.40
40.00 0.30
30.00 0.20
20.00
10.00 0.10
0.00 -

Pesticide consumption (000 tonnes) Pesticides (KG / hectare)

Source: Department of Agriculture, CSEC Research

Pesticide consumption in India is skewed towards the select states and crops. Crops like Rice and Cotton accounted for
29% and 27% of pesticide consumption. In terms of states, Andhra Pradesh (23%), Punjab (12%) and Maharashtra (12%)
account for ~47% of the pesticide consumption.

Chart 2: State-wise consumption of Pesticides Chart 3: Crop-wise consumption of Pesticides

Source: Research paper, Care Research, CSEC Research

Source: Research paper, Care Research, CSEC Research

2
Industry is undergoing structural change

Pesticide Industry is broadly classified into five categories; insecticide, herbicide, fungicide, fumigants and Rodenticides.
The Indian pesticide industry is undergoing a structural change. In 1982, pesticide market was highly dominated by
Insecticides which accounted for 89.9% of the production, followed by fungicide (6.1%) and Herbicide (2.2%). Over the
years, the share of Herbicide and Fungicide has increased sharply. In 2009, the share of Insecticides decreased to 55%,
while the share of Herbicide and Fungicide increased to 20% each.

Chart 4: Growing consumption of Herbicides and Fungicides

100
80
% Share

60
40
20
0
FY82 FY83 FY84 FY85 FY86 FY87 FY95 FY09

Insecticides Herbicides Fungicides Others

Source: Research Paper, CSEC Research

Lack of labour availability, rising labour costs and the advent of newer products are the key reasons for the shift towards
the use of herbicides. India is also witnessing a shift from low value – high quantity pesticides to high value – low quantity
pesticides. Between FY01 to FY10 pesticide consumption has decreased by 0.5% CAGR in terms of volume, while in
terms of value it has increased by ~8.2%.

th
CMIE has estimated the value of Indian crop protection industry at INR137bn in FY10. India is the 4 largest manufacturer
of pesticides behind the USA, Japan and China. India is also one of the most dynamic generic pesticide manufacturers in
the world though highly fragmented. According to industry data, more than 60 technical grade pesticides are being
manufactured indigenously by 125 producers including 60 large and medium scale enterprises.

Most Indian technical manufacturers are focusing on off-patent pesticides, which account for ~70% of the domestic market.
The industry landscape includes MNCs, medium-sized companies and hundreds of regional formulators. The key demand
drivers for the pesticide are to avoid crop loss and ensure higher yield, food security, higher labour costs, increasing MSP
and rapid urbanisation.

3
 Food Security:

India’s land share is 2.3% in the world's total land area, while it accounts for 17.5% of world population. Food security is the
key challenge faced by India, as it has to feed the growing population with limited land availability. The problem is further
aggravated due to the stagnant arable land, which peaked in 1991 at 143mn hectares and from thereon it is stagnated. In
2009, the arable land stood at 141.36mn hectares, while the demand for food and processed commodities is increasing
due to growing population and rising per capita income. According to Indian Council of Agricultural Research, the demand
for food grains would increase from 192mn tonnes in 2000 to 345mn tonnes in 2030. On an average, between 2006 and
2010, the average food production stood at 222mn tonnes.

Chart 5: Stagnant arable land Chart 6: Growing demand for food grains
160 400

Demand million tonnes

140 350
Million Hectare

120 300
100 250
80 200
60 150
100
40
50
20
0
0

Net Area Sown 2000 2030

Source: Department of Agriculture, CSEC Research Source: ICAR Vision 2030, CSEC Research

The food security issue to a large extent can be solved by increasing the yields of major crops and by controlling the food
wastage. According to the Government of India estimates, total value of crops lost due to non-usage of pesticides is around
USD17bn every year. Companies are increasingly training farmers on the right usage of agrichemicals in terms of measure
of usage, the right application method and usage of the right chemicals for the identified pest problems. These measures
are likely to increase the usage of agrichemicals.

Table 1: Loss in Yield due to Insect Pest Chart 7: Rising population and income level fuel
demand for agri-products
Crop India World-wide (%)
(%) 1220 $4,000
Population (mn)

Wheat 30 5 1200
USD Dollar

1180 $3,000
Rice 50 26.7 1160
1140 $2,000
Millet/ Sorghum 30 9.6 1120
1100 $1,000
Cotton 36 11 1080
1060 $0
Pulses 35 30
2007 2008 2009 2010 2011
Sugar cane >40 30
Vegetables 30 30 Population (mn) GDP Per capita - PPP current Dollar

Source: National Chemical Laboratory, 2004 Source: Bloomberg, CSEC Research

4
 Crop loss in cotton, rice, wheat and millet is very high in India compared to the global average. Lower consumption of
pesticide in India is attributed to the above average crop loss in India. Pesticide consumption in India is 0.39kg/hectare,
compared to China at 14kg/hectare, Japan (12kg/hectare) and USA (7kg/hectare).

Chart 8: Consumption of pesticides is low in India Chart 9: Yield of rice is 23% below global average
18 5

Rice Yield (tonnes / hectare)

16 5
14 4
Kg / hectare

12 4
10 3
8 3
6 2
4 2
2 1
0 1
0

Pesticide consumption (Kg/ha) India World

Source: Industry estimates, Ministry of Agriculture, CSEC Research Source: FAO, CSEC Research

According to FAO, India lags behind the global average yield of rice and wheat. In 2010, India’s average yield of rice and
wheat is 3.38 ton/hectare and 2.84 tons/hectare, which is 23% and 6% below the global average of 4.37 tons/hectare and
3.01 ton/hectare.

Chart 10: Yield of Wheat is 6% below global average

3.20
Wheat Yield (tonnes/ hectare)

3.10
3.00
2.90
2.80
2.70
2.60
2.50
2.40
2.30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

India World

Source: FAO, CSEC Research

5
 Rising labour cost & increasing urbanisation:

Rising labour cost and availability of farm workers are increasingly becoming a challenge to farm owners. Government
schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) which provides people in rural
areas a guaranteed hundred days of wage employment in a financial year. Moreover, India is also increasingly getting
urbanised; according to McKinsey, India is likely to witness an urbanisation rate of 40% by 2030, which will make the farm
labour situation even worse. We expect these factors are likely to drive a shift from manual weeding to higher use of
herbicides.

Chart 11: Rapid urbanisation, reduces farm labour availability and increases labour cost
800 50%
Urban Population (mn)

Urbanisation Rate
600 40%
30%
400
20%
200 10%
0 0%
1991 2001 2008 2030

Urban Population - mn Urbanization Rate

Source: McKinsey Global Institute, CSEC Research

Increasing Minimum Support Price (MSP) to spur affordability of pesticides

As India shifts towards high value pesticides the affordability will be the key driver for industry growth. In the last five years
between FY07 to FY12, MSP for rice and wheat (two key pesticide consuming crops) have increased at a CAGR of 13% &
11% respectively.

Chart 12: Growing MSP will increase the affordability of pesticides

1200
INR per quintal

1000
800
600
400
200
0

MSP - Rice MSP - wheat

Source: Government of India, CSEC Research

6
Chart 13: Porters Five Force Model:

Source: CSEC Research

7
Company Overview:

PI Industries’ is one of the leading players in the crop protection industry. Company largely operates under two main
segments a) Agriculture Inputs and b) Custom Synthesis and Contract Manufacturing.

Agriculture Inputs: Company is offering plant protection products and specialty plant nutrient products and solutions. PI
has a strong rural reach and brand equity duly backed by a robust pipeline of products, for sustained growth in the sector.

Custom Synthesis & Contract Manufacturing: Company is also providing contract research and manufacturing of
agrichemicals, intermediates and other niche fine chemicals for global innovators. The company is among the early
entrants in the space and leveraging their technical capabilities and strong relationship with global innovators.

Product Portfolio:
The company has a niche portfolio of 26 products which includes 5-6 in-licensed products in tie up with MNCs like Bayer,
BASF & Kumiai chemicals.

Common Name of Formulation Brand Name

INSECTICIDES
Achephae 75 WP OVAL
Buprofezin 25% SC PI BUPRO
Chlorfenapyr 10% SC LEPIDO
Cypermethrin 25% EC COLT
Dinotefuran 20% SG OSHEEN
Ethion 40% + Cypermethrin 5% EC COLFOS™
Ethion 50% EC FOSMITE
Flubendiamide 20% WG FLUTON
Imidacloprid 17.8% SL JUMBO
Metaldehyde 2.5% DP SNAILKIL
Phorate 10% CG FORATOX
Profenofos 40% + Cypermethrin 4% EC ROKET
Profenofos 50% EC CARINA
Profenofos 57% EC SIMBAA
Spiromecifen 22.9 SC VOLTAGE
Thiamethxam 25 WG MAXIMA
FUNGICIDES
Dimethomorph 50% WP LURIT
Iprobenfos 48% EC KITAZIN
Pyraclostrobin 5% + Metiram 55% WG CLUTCH
Tricyclozole 75% WP LOGIK™
HERBICIDES
Atrazine 50% WP SOLARO
Bispyribac Sodium 10% SC NOMINEE GOLD
Glyphosate 41% SL PI GLYPHO
Imazethapyr 10 SL INRO
SPECIALITY PRODUCTS
Seaweed (Ascophyllum nodusum) – Granular BIOVITA Gr
Seaweed (Ascophyllum nodusum) – Liquid BIOVITA Lq

The company manufactures products from its three formulations & two technical facilities based in Jammu and Panoli,
Gujarat. PI Industries’ has a strong distribution network of 8,000 dealers and distributors; 35,000 retailers and 27 stock
points.

8
Management Profile:

Mr. Salil Singhal (Chairman and Managing Director): He has been heading the company since July 1979. He was the
chairman of the Pesticides Association of India for 20 years. He was later elected as Chairman Emeritus. He was also the
member of the Executive committee of FICCI. In FY09 he also served as a Chairman of Northern Region of CII. Currently,
he is co-chairman of the CII National Council on Agriculture, and has been a member of the National Council of CII for the
past five years. Currently he is on the Boards of Wolkem India Ltd, Historic Resorts Hotels Pvt. Ltd, The Lake Palace
Hotels and Motels Pvt Ltd, Secure Meters Ltd, Somany Ceramics, PILL Finance & Investment Ltd, Usha Martin Ltd and
Secure International Holdings Pte. Ltd.

Mr. Maynak Singhal (Managing Director and CEO): He joined PI in 1996 and he was later appointed as Joint Managing
Director in 2004. In 2009, he was appointed as Managing Director and CEO. He holds an Engineering Management
degree from the UK. He is also a Director on the Boards of PI Life Science Research Ltd, PILL Finance and Investment Ltd
and Samaya Investment and Trading Pvt. Ltd.

Mr. Rajnish Sarna (Whole-time Director): He serves as a Compliance Officer, President of IT and Chief Financial Officer.
In November 2012, he was inducted as a Whole time director of PI Industries Ltd.

9
Investment Rationale

Blockbuster product portfolio & Strong product pipeline:

Company derives 80% of its agrichemical revenue from its top 10 products. Its key product is Nominee Gold, a rice
herbicide which contributes ~INR1bn to PI revenue. Nominee Gold is an in-licensed product launched in FY10 in tie up with
Kumiai Chemicals. The other key products are Biovita (plant nutrient), Roket and Foratox (multi-crop insecticide). Biovita
contributes INR0.5bn to PI revenue.

To give further boost to its revenue growth, the company launched two in-licensed products, i.e. Voltage in tie up with
Bayers and Clutch in tie up with BASF in FY12. In addition, the company has also filed for three molecules and signed four
new agreements with respective patent holders to evaluate these products in India. We expect PI Industries’ revenue
growth momentum to continue supported by the blockbuster product portfolios and strong product pipeline.

Non-compete and IP driven business model to compliment CRAMS business

According to the industry data, most Indian manufacturers of pesticides focus on off-patent pesticides, which accounts for
~70% of the domestic market. As a cautious strategy, PI Industries’ to large extent planned to stay away from the crowded
generics market, to focus on IP driven business model by entering an in-licensing agreement with MNC players to sell the
molecules in domestic market, by leveraging its distribution strength and brand equity. In-licensing agreements are
purchasing and sales transaction, where PI Industries’ purchases the technical grade products from the innovator and
formulates & packs them under its own brand to sell in Indian market. Most of these deals are exclusive license lasting for
a minimum 8-10 years.

This non-compete business model of PI Industires’ also compliments their Custom synthesis and CRAMS business, as the
MNC companies which use their contract research and manufacturing service feel comfortable about the security of their
innovation and patented molecules.

Strong order book provides revenue visibility

PI Industries’ leverages its strong research and manufacturing capability by providing Custom Synthesis and CRAMS to
MNC clients. Currently, the company has an order book position of ~US$318mn, ~ 2X Company’s revenue (FY12) which
provides revenue visibility; long-term contracts are executable within 3-4 years. In the custom synthesis business, PI
Industries’ enters into either multi-year or annual contracts with customers, while the order book doesn’t include annual
purchase orders. These orders are from 8-9 companies and top client accounts 15-18% of its CSM revenue and the top 5
clients contributes ~75% of CSM revenue. As a strategic decision company focuses on a balance between flexibility and
revenue visibility to optimize the resources. After prolonged investment phase, custom synthesis business has reached an
inflection point; company’s revenue from CSM has grown at a CAGR of 51% between FY08-12 to INR 3.78bn, of which
close to 60-65% of annual revenue comes from long-term contract and the remaining from annual purchase orders.

10
Chart 14: Strong order book position

400

300
USD mn

200

100

0
FY10 FY11 FY12 1QFY13 2QFY13

Order Book (US$mn)

Source: Company, CSEC Research

Currently, PI Industries’ has 13-14 molecules in the custom synthesis businesses that have reached commercial-scale, and
at any given point, there would be 25 to 30 molecules in the R&D, pilot / kilo lab. In general, there is a 40-50% probability of
R&D molecules attaining commercial-scale.

Commissioning of Jambusar facility to aid the growth momentum in CSM

PI Industries’ have commissioned the first phase of Jambusar facility in Gujarat, over the last two years company has
invested close to INR 1.7bn. Jambusar facility has four phases with a total capex of INR3bn and PI plans to commission
the other three phases over next 3-4 years. Each phase can generate a peak sale of INR 1.5bn – 2bn (3-4X asset
turnover). Management expects the phase-I will have a capacity utilization of 45-50% in FY14 which would translate into
revenue of INR 0.75bn – 1bn.

Exploring opportunity outside of pesticides

In 2011, the company inaugurated a joint research centre in Udaipur, in partnership with Sony Corporation to conduct
research on synthetic organic chemicals for application in electronic industry. Though the revenue contribution from the
deal is not significant, there is a huge opportunity for growth in custom synthesis space. PI Industries’ alliance with Sony
will endorse its R&D and technical capabilities in this space.

11
Financials

Revenues are expected to grow at CAGR of 21.4% between FY12-15

PI Industries’ revenue had grown at a CAGR of ~24% from INR3.71bn in FY08 to INR8.75bn in FY12; the growth was
largely aided by realisation improvement, while the volume growth was marginally negative. Despite the weak monsoon in
the 1HFY13, PI Industries’ revenue grew 19% y-o-y to INR 5.38bn. In the 2HFY13, we expect the custom synthesis
business to contribute growth to a large extent. Management has highlighted that the CSM realisation of the order book in
the 2HFY13 would be USD60-65mn. We expect PI Industries’ revenue to grow at CAGR of 21.4% between FY12-15 and
this growth will be aided by the custom synthesis business and novel agrichemicals. Management has guided a 30-35%
growth in custom synthesis business over next 2 years.

Chart 15: Revenue to grow at CAGR of 21.4%

20,000

15,000

10,000

5,000

0
FY11 FY12 FY13E FY14E FY15E

Revenue (INR mn)

Source: Company, CSEC Research

Business mix coupled with operating leverage augur well for margin expansion

The company operates under two segments - Agrichemicals and CSM. CSM business margins are in the range of 18-20%,
which is higher than the generic agrichemicals business which has a margin in the range of 15-16%. The company has
witnessed a shift in business mix from agrichemicals to CSM, with the latter’s share increased from 32.2% in FY11 to ~43%
in FY12 and we expect CSM share to increase further. Even in agrichemicals business, PI Industries’ derives ~40-45% of
the revenue from in-licensing products, which has a higher margin (~25%) than generic agrichemicals business. A shift
towards the profitable business mix coupled with operating leverage augur well for margin expansion. We expect PI
Industries’ to witness EBIDTA margin expansion of 220bps between FY12-15 and EBIDTA to grow at a CAGR of 26.8%
from INR 1.39bn in FY12 to INR 2.83bn in FY15.

12
Chart 16: Margins are expected to improve
3,000 18.5
2,500 18.0
17.5
2,000 17.0
1,500 16.5
1,000 16.0
15.5
500 15.0
0 14.5
FY11 FY12 FY13E FY14E FY15E

EBIDTA EBIDTA Margin %

Source: Company, CSEC Research

Strong balance sheet and healthy return ratio

The company is consistently reducing its leverage, in FY07 PI Industries’ Net debt-equity ratio stood at 2.45X, which it
reduced to 0.76X in FY12 with an interest cover of 6.6X. Management has indicated that its future capex will be funded
through internal accrual and we expect the Net debt - equity to converge to 0.34X in FY15E. PI Industries’ has a healthy
return ratio, RoCE of 29.4% and RoE of 38% in FY12.

13
Valuation

Currently the stock is quoting at a P/E multiple of 15.2X FY13E and 12.0X FY14E EPS of INR 41.9 and INR 53.1
respectively. In terms of EV/ EBIDTA it is quoting at 9.9X & 8.0X and on P/BV basis it is quoting at 3.9X & 3.0X to
FY13E&14E respectively. PI Industries’ unique business model, strong relationship with global innovators, good revenue
visibility in CSM business and well spread distribution network make it a compelling investment case. We initiate coverage
on PI Industries’ with a Buy rating and with a target of INR 796, valuing the stock at 12XFY15E EPS, EV/EBIDTA at
7.9XFY15E and P/BV of 3XFY15E.

Chart 18: P/E band chart

PE Band - PI Industries Ltd.

900.00
800.00
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00
Oct-08

Jan-09

Oct-09

Jan-10

Oct-10

Jan-11

Oct-11

Jan-12

Oct-12

Jan-13
Apr-10
Apr-08

Apr-09

Apr-11

Apr-12
Jul-08

Jul-09

Jul-10

Jul-11

Jul-12
Price 8x 10x 12x 14x 16x

Source: CSEC Research

Relative Valuation:
Company OPM NPM P/E P/BV EV/EBIDTA EV/Sales ROE (%) Div Yield
(%)
PI Industries’* 17.03% 9.63% 15.2 3.9 9.9 1.7 28.9 0.8

Rallis 16.76% 9.54% 20.71 4.61 13.14 2.20 22.3 1.6

Insecticides India 11.77% 6.28% 13.21 2.43 9.85 1.16 18.4 0.7
Dhanuka Agritech 14.87% 10.77% 9.66 2.41 7.40 1.10 27.7 1.9
Source: *CSEC Research, Bloomberg (FY13)

Risk:
Pesticide demand is linked to monsoons and in years of poor monsoons demand goes down drastically
Genetically modified crops are made with inbuilt resistance towards pest that reduces the demand for
agrichemicals.
Execution delay in setting up new capacities would impact the growth in the custom synthesis business

14
Financials (Standalone)

Income Statement (Abstract) Per Share Ratios

INR(million) Particulars FY12 FY13E FY14E FY15E
Particulars FY12 FY13E FY14E FY15E Adjusted EPS (INR) 40.1 41.9 53.1 66.4
Net Revenue 8,775 10,956 13,230 15,704 Cash EPS 47.0 50.5 63.5 78.7
Growth (%) 22.02 24.85 20.75 18.70 BV/Share (INR) 127.4 162.9 208.7 265.8

Operating Expenditure 7,389 9,090 10,928 12,877 FCF/Share(INR) 0.9 9.1 18.1 12.4
EBIDTA 1,387 1,866 2,302 2,827 DPS (INR) 5.0 5.0 6.4 8.0
Growth (%) 20.24 34.60 23.34 22.80
Depreciation 171 215 262 311 Key Ratios
Other Income (net of
interest) -125 -139 -129 -129 Particulars FY12 FY13E FY14E FY15E
Dividend payout
Tax Paid 388 456 573 716
(%) 12.46 12.00 12.00 12.00
Tax Rate (%) 27.86 30.20 30.00 30.00
EBIDTA margin (%) 15.80 17.03 17.40 18.00
Reported PAT (after
min. interest) 1,005 1,055 1,338 1,671 PBT Margin (%) 15.88 13.80 14.44 15.20
Adjusted PAT 1,005 1,055 1,338 1,671 RoCE (%) 29.44 26.43 27.89 29.18
Growth (%) 56.81 4.95 26.76 24.90 RoE (%) 37.95 28.94 28.60 27.98
Current Ratio 1.22 1.24 1.29 1.33
Net Debt/Equity 0.76 0.60 0.44 0.34
Inventory Days 75 75 75 75
Balance Sheet (Abstract) Debtor Days 72 70 70 70
INR(million)
Creditor Days 48 48 48 48
Particulars FY12 FY13E FY14E FY15E
CCC* 99 97 97 97
Share Capital 125 125 125 125
Interest Cover Ratio 6.61 8.25 10.12 12.39
Reserves & Surplus 3,067 3,975 5,126 6,564
Net worth 3,192 4,100 5,251 6,689
Current Liabilities 3,865 4,712 5,396 6,132 DuPont Analysis
Non-Current Liab 1,639 1,494 1,499 1,504 Particulars FY12 FY13E FY14E FY15E
Total Liabilities 8,696 10,306 12,146 14,325 Net Profit Margin
(%) 11.46 9.63 10.11 10.64
Net Fixed Assets 3,751 4,239 4,983 5,929
Asset Turnover 1.12 1.15 1.18 1.19
Other Non-Current
Assets 227 227 227 227 Leverage factor 2.95 2.61 2.40 2.22
Cash & marketable
RoE (%) 37.95 28.94 28.60 27.98
securities 76 139 318 313
Other Current Assets 4,642 5,701 6,618 7,856
Total Assets 8,696 10,306 12,146 14,325 Valuation Ratios

Particulars FY12 FY13E FY14E FY15E

P/E 15.8 15.2 12.0 9.6
Cash Flow statement (Abstract)
P/BV 5.0 3.9 3.0 2.4
INR(million) EV/Sales 2.1 1.7 1.4 1.2
Particulars FY12 FY13E FY14E FY15E EV/EBIDTA 13.2 9.9 8.0 6.5
Cash flow from
Div Yield (%) 0.79 0.79 1.00 1.25
operations 1,041 934 1,462 1,567
Cash flow from
*CCC – Cash Conversion Cycle
investing -1,044 -635 -925 -1,176
Cash flow from
financing 2 -200 -357 -396
Free cash flow 22 230 456 311
Net change in cash -1 100 180 -5

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Cholamandalam Securities Limited
Member: BSE,NSE,MSE
Regd. Office: Dare House,2 (Old) # 234) N.S.C Bose Road, Chennai – 600 001.
Website : www.cholawealthdirect.com
Email id – customercarewm@chola.murugappa.com

Chola Securities is a leading southern India based Stock broker. Our focus area of coverage within the Indian market is Mid and small caps with a focus
on companies from southern India.

Our Institutional Equities services are carried out in partnership with RCCR, a boutique Investment research and Corporate Advisory firm founded by a
team with extensive experience in the Asset management industry.

RESEARCH
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Alagappan Ar Financial Services +91-44 - 3000 7363 alagappana@chola.murugappa.com
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Michel Charles C Technicals +91-44 - 3000 7353 michelcc@chola.murugappa.com
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INSTITUTIONAL SALES
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Mumbai +022 - 22617210 santoshks@chola.murugappa.com
Sharma

RETAIL SALES
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COMPLIANCE
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DISCLAIMER:

This report is for private circulation and for the personal information of the authorized recipient only, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or
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The research analyst who is primarily responsible for this report certifies that: (1) all of the views expressed in this report accurately reflect his or her personal opinions about any and all of the subject
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reliable, comprehensive information, but we make no representation that it is accurate or complete.

The views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein Cholamandalam Securities Limited reserves the right to make modifications and
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