India Pesticides: generated ~40% revenue from exports in FY24

  • India Pesticides: generated ~40% revenue from exports in FY24

  • Diversified Product Portfolio 
    • IPL has ~28-30 molecules (technical) registered in India. 
    • The domestic product portfolio is dominated by a few off patent old generic molecules, leading to moderate sales concentration risk. 
    • The company is continuously investing in its research and development capabilities to develop new molecules, which are expected to reduce its dependence on old molecules. 
    • IPL has also registered its products (Captan and Folpet) for exports in 25 countries across America, Europe, Asia and Australia, which is a step towards reducing the company’s dependence on domestic markets. 
    • The company has a distribution network consisting of over 4700 dealers with 20+ sales depots and sales force in place for marketing across Gujarat, Rajasthan, Maharashtra, Andhra Pradesh, Madhya Pradesh, Punjab, Haryana, and Uttar Pradesh, among others. 
  • Comfortable financial risk profile, despite moderation in scale of operations and profitability in FY24 
    • The company’s financial risk profile continues to be strong despite moderation in TOI and profitability in FY24, characterised by overall gearing of 0.02x as on March 31, 2024, which is at a similar level as on March 31, 2023. 
    • Interest coverage ratio remains healthy at 23.89x for FY24. 
    • Total debt to PBILDT (TD/PBILDT) and TD to gross cash accruals (TD/GCA) moderated to 0.22x & 0.24x respectively in FY24 from 0.03x & 0.03x respectively in FY23, which was considering lower margins. 
    • Scale of operations moderated in FY24 by 23%, with TOI at ₹684.08 crore against ₹892.55 crore in FY23. 
    • The moderation was primarily due to fall in realisations and reduced demand in export market in FY24. 
    • Major clients of the company deferred their orders due to channel destocking and pricing pressure from China’s re-entry into the market. 
    • Domestic demand also remained under pressure due to lower prices offered by Chinese counterparts and impact of El Nino. 
    • To address channel destocking, major exporters offered rebates to distributors, resulting in a price reduction and pressure on operating profitability in FY24. 
    • PBILDT margins moderated to 13.23% in FY24 (PY: 22.99%). 
    • Key weaknesses 
    • Working capital intensive business 
      • In FY24, the company’s operating cycle elongated to 211 days compared to 152 days in FY23. 
      • The elongation in operating cycle was largely due to reduced scale of operations and relatively high inventory at the end of the year due to demand remaining under pressure. 
      • Moreover, inventory requirement for pesticides industry generally remains high due to commoditised nature of products and seasonality factor (high demand in crop sowing seasons). 
      • The company has to allow higher credit period for newly launched products to generate demand initially. 
    • Customer concentration risk and exposure to fluctuations in raw material prices 
      • In FY24, the company had a total net sale of ~₹680 crore, of which, ~28% (PY: ~47%) was made to top five customers. 
      • Customer concentration risk remains moderate, however, the percentage reduced in FY24, primarily because of two major export customers deferring their orders for later date due to high channel inventory and adverse weather conditions in Europe and Australia. 
      • Orders were mainly targeted for Q4-FY24. 
      • However, considering recovery in volumes that is expected across the industry, the percentage of sale from top five customers is expected to be in the similar range as in previous years. 
    • Exposure to foreign currency fluctuation risk 
      • IPL’s products are registered in over 25 countries across the globe. 
      • The company generated ~40% revenue from exports in FY24, which exposes it to inherent risk of foreign exchange fluctuation. 
      • However, IPL imports some portion of its raw material requirement, which provided a natural hedge to some extent. 
      • The company majorly imports Tetra Hydro Phthalic Anhydride (THPA), Ammonium Thiocyanate, Di N Propylamine and Cyano Acetyl Ethyl Urea from mainly Taiwan and China. 
      • Though company has a hedging policy in place, total exports sales have been higher than raw materials imported and in the last few years the rupee has been on declining trend. 
      • In FY24, the company booked a net forex gain of ₹3.45 crore (net forex gain of ₹7.61 crore in FY23). 

India Pesticides: favourable agricultural conditions

  • Sole Indian manufacturer and global leading manufacturer of Thiocarbamate, 2 Fungicide & Herbicide Technical, in terms of production capacity  
  • Present installed capacity of Technical is 24,200 MT and for formulation is 6,500 MT as of 30.06.2024   
  • Major customers include MNCs that look to collaborate with active ingredient manufacturers in India  
  • Among top 5 manufacturers globally for several technical in Fungicides and Herbicides   
  • Broad international footprint, exporting to over ~25+ countries  
  • Employing a ‘China plus one strategy and reducing dependence on China  
  • Capex Plans
  • Planned capital expenditure of ₹110 crore for FY25 to further boost capacity  
  • Sandila + Hamirpur Budgeted Capex of Rs. ~110 Crore for FY25  
  • Successfully commissioned intermediate plant, a significant step towards the backward integration of one of key fungicides, which was previously imported
  • Expanding list of prospective customers by registering products in regulated markets
  • Efforts are on by R&D team to optimize the existing processes for overall cost reduction.    

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