Insecticides (India): Sowing seeds of growth

The stock of Insecticides (India) has corrected about 56 per cent in the past year. Weak monsoon for the second consecutive year and the resultant decline in the consumption of agri inputs impacted sales of crop protection chemicals.

Despite the slack performance in 2015-16, the company is likely to resume the growth path over the next two to three years, on the back of three key initiatives. First, it is building a strong pipeline of limited competition generic products which should give a leg up to profitability.

Second, with about 350 product registrations, there is significant room for Insecticides (India) to expand the market for existing products. It plans to achieve this by expanding its distribution reach. Third, launch of innovative products from the company’s joint venture with Japanese crop chemicals manufacturer OAT Agrio Co for research and development should happen over the next two to three years.

The stock currently trades at about nine times its estimated 2016-17 earnings. This implies about 30 per cent discount to its peak valuation of 12-14 times the one-year forward earnings. Given the healthy medium-term growth prospects, the steep correction in the stock price has made it attractive from a two to three-year investment horizon.

Incorporated in 1996, Insecticides India was able to quickly scale up its business through product/brand acquisitions. Having started off with the acquisition of 21 brands from the Ranbaxy group company Montari Industries in 2003, the company went on to acquire the rights to sell leading global brands such as AMVAC’s Thimet and launched products such as Nuvan, Hakama and Pulsor in collaboration with AMVAC and Nisan.

After a docile show in 2014-15 due to weak monsoon for the last two consecutive seasons, the company should clock healthy growth over the next two to three years, supported by the three key initiatives .

One, Insecticides India is building a pipeline of low-competition products. It has partnerships with global majors such as the Japanese fine chemicals producer Nissan Chemical Industries and American Vanguard Corporation’s subsidiary AMVAC to in-licence molecules and launch them in India. Besides, the company is believed to be in talks with other global majors to in-licence a few other key molecules, which are likely to be launched by early 2016-17. The company also plans to expand its research and development centre at Chopanki, Rajasthan.

It is also working on developing generic version of branded crop protection chemicals. With over $6.3 billion worth agrochemicals slated to lose patent protection by 2020, the opportunity in the generics space is immense. Insecticides (India) plans to tap into this by developing generic versions of these products through reverse engineering. This should help the company grow significantly over the short to medium term.

Besides crop chemicals, the company also has presence in the bio-fertiliser segment with its flagship brand Mycoraja.

Also, it has a portfolio of 99 formulations and 18 technicals (active ingredients) translating into about 350 product registrations. The top nine and top 20 brands constituted about 53 per cent and 68 per cent of the company’s revenue in 2014-15.

Given the large product portfolio, there is significant scope for the company to grow its smaller brands, besides ensuring steady growth in revenue from its flagship brands. The company currently sells its products through its 5,000 plus distributors spread across the country. Plans are underway to expand its reach in India and overseas markets. Exports currently account for less than 5 per cent of the company’s revenues.

Finally, Insecticides India’s joint venture with Japanese crop chemicals manufacturer OAT Agrio Co for innovative research and development is gaining momentum. The joint venture has commenced filing of patents and commercial launch of the first product is expected over the next two to three years. This should boost the company’s performance in the medium term.

While the company product portfolio’s hold promise, its business is vulnerable to the vagaries of monsoon. Another year of below normal monsoon may impact the company’s growth plans.

Insecticides (India) reported flat revenue of ₹810 crore for the nine months ended December 2015, compared with the same period last year. Its net profit declined by 19 per cent during this period, on account of weak demand due to deficient monsoon.